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UTi Posts Sluggish Fiscal Q4 Results

Written by on April 1, 2013

UTi Worldwide’s fiscal fourth-quarter 2013 top line largely met analysts expectations, though adjusted operating margins came in a bit short. Total gross revenue fell 5% from the same period last year. On an organic basis (excluding foreign exchange), gross revenue fell 3% because of continued weakness in airfreight demand and sluggish pricing to customers (management pointed out that the competitive environment remains “the toughest seen in many years.”)

Softer contract logistics activity also contributed, as lower same-customer volumes and a previously announced contract loss more than offset solid new business wins. Airfreight tonnage fell about 1%. In general, weak airfreight conditions are not a surprise, particularly given anemic macroeconomic trends in Europe.

Analysts suspect customer downshifting to ocean freight is also weighing on airfreight demand, as this has been a key headwind over the past year. Ocean shipments increased 4%–they were about flat in the fiscal third quarter. Encouragingly, airfreight tonnage declines moderated from the 12% year-over-year fall seen throughout the first three quarters of the fiscal year, but there was likely some benefit from the timing of the Chinese New Year (for ocean as well). While the timing of UTi’s fourth quarter differs (ends in January) slightly from some of its peers, global forwarder Expeditors International also reported improved tonnage trends in its fourth quarter. That said, management’s commentary remained cautious, and the firm still isn’t expecting significant improvement in the year ahead.

On an organic basis, net revenue (gross revenue less purchased transportation) fell 7%–more than the top-line contraction because of gross margin compression (on both air and ocean business) stemming from weak customer pricing and higher capacity rates for some shipments. Excluding noise from several non-recurring items, including severance costs and a sizable $93 million goodwill writedown, the firm posted a 2.1% loss (off net revenue), versus a 7.9% profit in the same period last year.

Management discussed several factors that contributed to the adjusted margin contraction, including pricing pressure, investments in the contract logistics business (warehouse moves), and redundant costs associated with the new forwarding and finance systems rollout.



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