Drama encircles Uti Worldwide as it announced its fiscal third quarter earnings this week. Is it an acquisition target? Why did former Chief Executive Officer Eric Kirchner leave in what appears to be in an abrupt manner? In acquiescence to the company’s request, these questions were not addressed during the earnings call, instead the discussion focused on Uti’s disappointing quarterly financial results.
For the quarter period ending October 31, Uti recorded a 6.6% decline in revenue to $1.08bn. Net revenue declined 3.3% to $381m. The culprit for this larger than expected decline was its freight forwarding division with a 11.4% decline in revenue to $689m and 8.8% decline in net revenue to $166m. Yes, currency also had a negative impact but a 6.0% decline in air freight tonnage certainly played a big role. While the US west coast port situation has not helped matters, a significant peak season seems to have caught Uti off guard as it had a negative $1m impact on October operating income and forwarding due to spot market prices that went well above its expectations.
Newly appointed Chief Executive Officer, Edward Feitzinger, noted costs as a key area of focus in order to, “Return our infrastructure costs to that of a nimble forwarder.”
Meanwhile the contract logistics and distribution division reported a 3.2% increase in revenue to $388m and net revenue up 1.4% to $215m. The growth could have been greater but new business start-up expenses and project timing negatively impacted this group.
On a positive note, Uti generated $9m in free cash flow – the first time in seven quarters. However, it is faced with a great deal of costs that need to be cut in order for the company to become a “nimble forwarder” as Feitzinger noted, and also a company that can effectively use all of its services and compete successfully on a global level. It has set up targets to hit over the next several quarters in order to reduce these costs. Cost cutting should be assisted as the financial benefits from its high priced IT systems begin to be felt.
So, as Uti Worldwide sets forth after recent events and with a new Chief Executive Officer, convincing existing and potential customers, as well as Wall Street that it is a viable and capable logistics provider may be necessary. Uti will hope that its cost cutting and provision of services will be suitably persuasive.
