After reading many company Securities and Exchange Commission filings, it's difficult to determine whether the language was written in mumbo jumbo or mamba jamba. One thing it often isn't: plain English. Expeditors International of Washington
It is earnings season, however, so some numbers are worth a mention. For the third quarter, Expeditors increased revenue by 26% (compared with the same quarter a year ago) to $897.1 million. Its net income increased to $43.1 million -- a 32% year-over-year increase.
OK. Now that the numbers are out of the way, let's get back to those jaw-dropping 8-K filings. Before diving into the current filing, the 8-K filed on Aug. 12 provides some good info about the company:
In question No. 44, one daring questioner refers to a flashy term called "supply chain management." Expeditors doesn't put much stock in fancy words, and its response reveals the simplicity of its business: "At its core, the objectives of this business are very simple -- you need to take a bunch of stuff from over there and move that stuff to some place over here... as quickly as possible for the lowest price with the highest reliability and best communication."
Question No. 43 sheds some light on its competition -- UPS
What nugget of wisdom can be extrapolated from its most recent 8-K filing? How about question No. 14, where a persistent reporter seeks some fact-checking; Expeditors' retort gives us a glimpse as to why the company chooses this form of disclosure:
"If fair disclosure means letting everybody access information simultaneously, how could this obligation be met in an environment where only professional stock analysts could participate? If the information companies were going to give out was meant to be meaningful, how could spontaneous answers in a conference call always supply thoughtful and factual responses? And yes, as that article pointed out, not every conference call questioner has a pure heart -- there are shorts out there who wouldn't mind making the stock drop during a conference call if they could.
"So, we don't do conference calls. Instead we do 8-Ks on a fairly regular basis because everybody gets an equal shot at asking a question and everybody gets an equal chance to read our best effort at answering the questions we publish. And we answer the vast majority of the questions we receive. We don't require names or fancy corporate affiliations, and for all we know our competition has asked a question or two along the way. We are certainly reminded often enough that they are among our most faithful readers."
Expeditors has mastered the art of simple, straight-shooting communication -- if all other companies would be so daring. With unparalleled disclosure the likes of Berkshire Hathaway
Expeditors is expected to produce $1.44 in earnings per share (EPS) for 2004, giving it a price-to-earnings ratio (P/E) of 37.5. Moreover, for 2005, it is expected to earn $1.72 per share, branding it with a forward P/E of 31.5. At first glance, this stock looks expensive, but P/Es are not the be-all and end-all, and neither are analyst projections.
A look at its structural free cash flow (SFCF) will give us a better idea of its valuation. With a market capitalization of $5.7 billion, no long-term debt, and cash of $377.5 million, the company sports an enterprise value (EV) of $5.3 billion. After nine months, it has SFCF of $82.6 million, with a run rate of $109.9 million. With an EV/SFCF of 48, there is no question this stock is richly priced.
With insiders lightening their position in the company, and given the steep valuation mentioned above, the prudent decision is a patient one. While waiting for a good buying opportunity, sit back, kick up your legs, pour yourself a tall glass, and dive into one of the great investment reads, Expeditors' 8-Ks.
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Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.
