UTi Worldwide Inc. (UTIW)
F3Q 2013 Earnings Conference Call
December 06, 2012, 11:00 AM ET
Executives
Eric Kirchner – CEO
Rick Rodick – CFO
Ed Feitzinger – EVP, Global Operations
Jeff Misakian – VP, IR
Analysts
William Greene – Morgan Stanley
Tom Wadewitz – JPMorgan
Scott Group – Wolfe Trahan
Ben Hartford – Baird
Jack Atkins – Stephens
David Ross – Stifel Nicolaus
Elliott Waller – Jefferies & Company
Nate Brochmann – William Blair
Todd Fowler – KeyBanc Capital Markets
David Campbell – Thompson Davis & Company
Ryan Bouchard – Avondale Partners
Matt Young – Morningstar
Presentation
Operator
Good day, ladies and gentlemen and thank you for standing by. Welcome to the UTi 2013 Third Quarter Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions).
I would now like to turn the conference over to Jeff Misakian. Please, sir, go ahead.
Jeff Misakian
Thank you, Richard, and good morning, everyone. Welcome to UTi Worldwide's fiscal 2013 third quarter results conference call. Joining us on the call today are Eric Kirchner, Chief Executive Officer; and Rick Rodick, Chief Financial Officer. Ed Feitzinger, Executive Vice President, Global Operations, is also here and available to answer questions during the Q&A session.
Before we begin the presentation, I would like to point out that certain statements made on today's call are not historical facts. They may be deemed therefore to be forward-looking statements under the Private Litigation Reform Act of 1995. Many important factors may cause the company's actual results to differ materially from those discussed in any forward-looking statements.
These risks and uncertainties are described in further detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for more information regarding the risks and uncertainties that the company faces. UTi undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.
Now, I would like to turn the call over to Eric Kirchner. Eric?
Eric Kirchner
Thank you, Jeff. Good morning, everyone. Results for our fiscal 2013 third quarter were unsatisfactory. The combination of weak airfreight volumes, reduced activity in contract logistics, changes in currency translation, our inefficient platform and a number of one-time items led to a 36% decline in adjusted operating income and a 45% decrease in adjusted net income for the quarter.
Many of the same issues that negatively impacted our results throughout the year continued into our third quarter. Global economies have slowed, consumer demand tepid and clients have grown increasingly cautious. Freight demand remained weak in a quarter that saw no appreciable peak shipping season. Meanwhile, competition and pricing pressures have intensified.
This impacted our revenues through some lost business and reduced pricing to retain existing clients. We continued to win new business through our sales efforts but at a pace that was insufficient to offset the decline from existing clients and we will not chase unprofitable business.
These factors led to a 10.7% decrease in revenue and a 9% decline in net revenue in the third quarter. In Freight Forwarding, airfreight tonnage fell 12% in the third quarter while ocean freight TEUs were consistent with the same period last year. Airfreight tonnage decreased 18% in the month of September with the largest decline coming out of EMENA.
October tonnage saw 10%, a sequential improvement that partly reflects an easier comparison. Dynamics seen all year in airfreight continued to play out in the third quarter where wafer shipments fell and clients increasingly favored the less expensive mode of ocean freight. The flat volumes in ocean freight reflect a lack of a peak season.
At the same time we did not experience the offsetting expansion in net revenue per unit of cargo that traditionally comes with a soft volume environment. Clients who start to maintain stability in their transportation costs and many freight forwarders are trying to capture market share. And carriers are determined to maintain higher rates as long as possible. This dynamic is pressuring net revenue per unit throughout the entire industry. Because of our pricing initiatives and productivity measures, we've managed to keep our net revenue per unit relatively flat with the prior year and quarter when adjusted for currency.
Contract Logistics and Distribution revenue was down in the third quarter primarily because of currency and lower volumes from existing Contract Logistics clients. An increase in distribution volumes partially offset these factors. We saw declines in the EMENA, in the Americas regions due to lower volumes in existing facilities and the impact from some lost business as anticipated.
In our Africa and Asia-Pacific regions, we continued to see higher volumes through existing business and new clients. Because operating expenses are largely tied to shipments rather than tonnage or TEUs, they declined less than net revenue. We're taking additional actions to adjust our expensed base in response to the lower volumes, some expensed actions which we have planned to execute through our transformation in fiscal 2014. We expect to save approximately $25 million in annualized operating expenses as a result of these actions.
These cost reductions are designed to stabilize productivity in a very weak environment. On the transformation front, we've launched our new Freight Forwarding operating system and our new financial system in multiple countries with plans to add more by the end of this fiscal year. I have more to say about our transformation progress in our closing remarks.
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