Despite loss, new CEO says UTi Worldwide is past 'turning point'

Despite loss, new CEO says UTi Worldwide is past 'turning point'

Less than a day after CEO and board member Eric W. Kirchner resigned, logistics operator UTi Worldwide posted weaker-than-expected results for its third quarter, reporting a $34 million net loss on a 6.6 percent year-over-year drop in revenue to $1.08 billion.

The CEO resignation and deeper losses came a week after UTi Worldwide was reported by Bloomberg to be in acquisition talks with Norwegian logistics operator DSV Air & Sea Holding A/S. Both companies admitted holding “exploratory talks” but said they went no further.

Industry analysts believe UTi Worldwide remains a likely takeover candidate, and are relatively bullish on its long-term prospects. “There’s a lot of good value in this company,” Satish Jindel, president of transportation research firm SJ Consulting Group, said.

“UTi Worldwide’s earnings are being read a lot more critically than they should be by people not familiar with the business,” he said. “The decline in revenue is primarily because of currency fluctuations, and that’s something no company has any control over.”

UTi’s net revenue dropped 3.1 percent year-over-year to $381 million in the quarter, but on a constant currency basis rose 0.1 percent. “So many global companies see revenue drop down because of currency markets,” said Jindel. “That needs to be pointed out.”

Other factors did contribute to the company’s losses. Kirchner’s successor as CEO, Edward G. Feitzinger, said service issues and billing challenges connected to the rollout of its freight forwarding system in the U.S. “adversely impacted” third-quarter forwarding revenue.

Feitzinger, who joined UTi in 2009, also mentioned $11 million in “temporary” costs. A customer bankruptcy also cost UTi $19.6 million, the company said Dec. 9. UTi paid an additional $4.1 million in severance and other charges. Those costs helped more than triple the company’s loss from $9.1 million a year ago to this quarter’s $34 million.

The Long Beach, California-based company gave no reason for Kirchner’s departure, but UTi Worldwide posted losses in three out of the six years the former UPS executive was CEO. Gross revenue dropped 3.6 percent to $4.4 billion in its fiscal year that ended last January.

Kirchner’s tenure coincided with a weak recovery from the global financial crisis and recession. Over the past six years, UTi has worked to transform its business processes and build a global freight forwarding information technology system, 1VIEW.

The good news is, that IT system is now mostly in place and should be completed before the end of this fiscal year, the company said. Feitzinger called the latest quarter a turning point. “Air freight kilos improved on a year-over-year basis for the month of October,” he said.

“With the rollout of its 1VIEW system for global freight forwarding largely complete and margin expansion ahead, we believe UTi's results should continue to improve,” David G. Ross, a managing director at equity research firm Stifel, said in a Dec. 9 note to investors.

“UTi is an attractive asset to anyone looking to establish a global presence in freight forwarding and/or contract logistics,” Ross said. He noted UTi’s footprint in the U.S. as well as links from the U.S. to other major markets and “significant” margin expansion potential.

“In addition, the global airfreight market has strengthened this fall, and forwarding pricing appears to be improving, which is a positive development for the company after years of declining revenues and yield pressure in airfreight,” Ross said in his investor letter.

“I think within a year this company will be acquired by someone,” Jindel said in an interview. “It will be good for the company and for the buyer too.”

Contact William B. Cassidy at wcassidy@joc.com and follow him on Twitter: @wbcassidy_joc