Weighing the Value of UTi Worldwide: Is the Stock a Buy?

Source: Thinkstock

Source: Thinkstock

UTi Worldwide Inc. (NASDAQ:UTIW) is a unique company. Essentially, it provides non-asset-based supply chain services and solutions worldwide. It operates in two main segments, Freight Forwarding, and Contract Logistics and Distribution. The Freight Forwarding segment offers airfreight forwarding, ocean freight forwarding, customs brokerage, and other related services. The Contract Logistics and Distribution segment provides contract logistics services, such as receiving, deconsolidation and decontainerization, sorting, put away, consolidation, assembly, cargo loading and unloading, assembly of freight and protective packaging, warehousing services, order management, and customized distribution and inventory management services. This segment also offers outsourced services, including inspection services, quality centers, and manufacturing support services; and inventory management services comprising materials sourcing services pursuant to contractual, formalized repackaging programs, and materials sourcing agreements.

In addition, this segment provides a range of distribution, consultation, outsourced management services, planning and optimization services, and other supply chain management services. The company markets its services through a network of freight forwarding offices and contract logistics and distribution centers to the pharmaceutical, retail, apparel, chemical, automotive, and high technology electronics industries. The company’s stock has been crushed this year, down about 39 percent. This is because the company has been delivering less than stellar results.

Compared to last year’s comparable quarter, quarterly revenues were $1.045 billion, a decrease of 3.3 percent from $1.081 billion. Net revenues (revenues minus purchased transportation costs) were $372.9 million, a decrease of 0.8 percent from $375.7 million. On an organic basis, revenues decreased 0.3 percent and net revenues increased 3.8 percent versus the comparable prior year period. Net loss attributable to UTi Worldwide Inc. was $43.2 million in the fiscal 2015 first-quarter. Net loss attributable to common shareholders after dividends on preferred stock was $0.43 per diluted common share. Net loss attributable to UTi Worldwide Inc. in the fiscal 2014 first-quarter was $12.4 million, or $0.12 per diluted common share.

The GAAP net loss in the fiscal 2015 first-quarter includes a loss on debt extinguishment of $21.8 million, or $0.21 per diluted share, related to the company’s refinancing activities completed earlier in the year. In addition, UTi recorded additional tax expense exceeding its normalized tax rate of $13.0 million, or $0.12 per diluted common share. Excluding the loss on debt extinguishment and the additional tax expense described above, non-GAAP net loss attributable to UTi Worldwide Inc. was $7.8 million. Non-GAAP net loss attributable to common shareholders after preferred stock dividends was $0.09 per diluted common share. Earnings before interest expense, income taxes, depreciation and amortization, as adjusted for severance and other costs and stock compensation expense (adjusted EBITDA) totaled $26.2 million compared to $31.0 million. Eric W. Kirchner, chief executive officer, stated the following:

First-quarter results were in line with our expectations. Adjusting for negative currency effects, net revenue rose 3.8 percent in the first-quarter, primarily due to increased activity in both business segments and an improvement in freight forwarding yields. Freight forwarding volumes grew slightly compared to the first-quarter of last year. Net revenue per unit of cargo increased as buy rates improved. Contract logistics and distribution recorded solid revenue growth on a constant-currency basis, due to gains in new and existing accounts in all regions. We continued to win new business in both business segments in the first-quarter, which we expect will lead to revenue growth in the second half of this year.

We made further progress in our transformation activities. We implemented our View operating system in five additional countries. This brings to 37 the total number of countries on the new system, representing approximately 77 percent of freight forwarding transactions. We expect to add 8-10 additional countries by September 1, 2014, which would bring us to approximately 85 percent of transactions. We continue to target completion of the system implementation by the end of the third-quarter of fiscal 2015. We plan to achieve $95 million in annualized cost savings by the end of fiscal 2015, which represents the high end of the range of our prior estimates.

As previously disclosed, we already took action in fiscal 2014 to remove approximately $50 million of this total. These cost reductions were in place in the first quarter, but we also incurred higher payroll-related expenses and transformation costs, as well as expenses associated with growth in contract logistics and distribution. These higher costs are part of our fiscal 2015 business plan, which also calls for revenue growth and productivity improvements that are independent of the transformation that are expected to fund these cost increases in the second half of the year. As a result, we expect adjusted EBITDA to improve significantly this year as we complete our cost reduction measures and begin to remove duplicative costs associated with the transformation.

Looking ahead, the company is trying to clean up its act. It seems to be doing all it can to cut costs and improve earnings. While the company has had some hard times, I think it will start to move in the right direction in the next few quarters. At $9.50 per share, I believe the company is offering an attractive entry point.

Disclosure: Christopher F. Davis holds no position inUti Worldwideand has no plans to initiate a position in the next 72 hours. He has a buy rating on the stock and an $11 price target.

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