UTi Worldwide Earnings Call Insights: Costs Outlook and Competitive Conditions

UTi Worldwide, Inc. (NASDAQ:UTIW) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Costs Outlook

William Greene – Morgan Stanley: Eric, can I ask you just a comment a little bit on what you just – I may not have caught it all. And I just want to make sure I understand. What is the way we should be thinking about third and fourth quarters relative to what we have just seen. How much of the cost actually goes away, because I’m struggling a little bit to figure out how to think about your trends given how many one-time items are sort of moving through this that aren’t always exactly called out. So, any help you can give us sort of on sequential changes that we need to pay attention to would be helpful?

Eric Kirchner – CEO: As Rick mentioned, we have cost associated with the transformation that are running at about $7 million a quarter, and those would be expected to continue through the remainder of the year. However, the more volume that we get on this system, the more opportunities that we have to begin taking action that we talked about when we began the process. So, we are still targeted towards the ultimate savings of between $75 million and $95 million. And as I said, the more volume on the system, the more of those costs become accessible. Part of our challenge in this quarter, and it’s likely to continue into the third quarter is the fact that, as we mentioned, we were about six months behind where we expected to be at this time with the rollout of the system, and therefore that’s caused us to carry some duplicative costs that will start to come off as we get more countries on this system and get further through this deployment process. We also invested in local sales initiatives. We believe that there is much more opportunity for us to get back on the growth curve and that requires an investment that comes in advance of the net revenue growth. So, I don’t know if I’m answering your question specifically, but I don’t believe that we’re materially off with respect to where we want to be with in terms of the cost take-outs that will come towards the end of the third and into the fourth quarter and that should set us up on a lot better run rate going into next year.

William Greene – Morgan Stanley: So the sequential changes that we’ve historically used, what shouldn’t really apply to third and fourth quarter? Typically there is a step-up in earnings I think in third quarter, but that’s what I was basically getting at. I guess, what I’m taking away is these costs continue so the sequential changes maybe aren’t as useful…

Eric Kirchner – CEO: Our track record is not to give guidance, so I’d say it’s likely that the cost overhang that we saw in the second quarter would be similar in the third quarter. And then with respect to the fourth, I’d hope to see some of the costs coming off by that point. Now, the wildcard becomes revenue, right. So we’ve – I referenced and Ed might speak to it a little bit more later, that there might a very small potential of a peak season and it would be market-specific and likely short in duration. But there may be some opportunities associated with new business coming on between now and the end of the year that would help the dynamic with regard to offsetting the cost that we’re seeing, but it’s hard to have a crystal ball with the freight environment right now.

Competitive Conditions

Tom Wadewitz – JPMorgan: Wanted to see if you could comment a bit on the market and competitive conditions. You did see a little bit of growth in airfreight tons which was favorable and pretty good growth in the ocean side. But I guess I just wanted to see if you could give a sense of whether that built through the quarter and whether you would expect better performance in terms of tonnage growth and TEU growth in the next several quarters, or whether you think it’s going to remain pretty muted and maybe also a thought on competitive conditions…

Ed Feitzinger – EVP, Global Contract Logistics and Distribution: Thanks Tom. This is Ed. So, the market – the way we are looking at the market, it’s very volatile right now by trade lane, both in terms of price as well as in terms of tonnage. So, as Eric mentioned in his opening comments, we’ve seen quite a bit of growth out of our Asia business, both intra-Asia and Asia to Europe, Asia to the North American business. If you look across the quarter, we’ve seen very low single-digit increases in airfreight, so plus or minus 1% in our airfreight tonnage. Ocean; there are some anomalies in the ocean over the quarter, so you have to be very careful about it, because of specific items in the European trade lane where a big GRI push from the providers caused some spikes in demand that occurred over the course of the quarter. For August, the numbers look pretty good on the air side. It’s very early days, and again, a lot of that is probably Asia driven. So, you have to be very careful about looking at that and drawing conclusions for the rest of the market. And ocean, again, because we think that there was a fair amount of push of business out of Asia into Europe to avoid the GRIs, I would say that the third quarter is somewhat uncertain from the ocean side. So I think that at least from our perspective is where we see that our business, the competitive environment is very, very volatile on each lane as people look to make a margin and build their own consolidation. So it’s – and the carriers are constantly trying to push up rates and to see what sticks on the ocean side. There’s still a ton of capacity coming into the market, but as we saw in Europe and we saw in Trans-Pacific Eastbound, the carriers are desperately trying to figure out a way to get some more money for their shipments and they are pushing GRIs every couple months and seeing what sticks. So it’s a very unique market in terms of both the price side as well as the underlying volumes.

Tom Wadewitz – JPMorgan: Do you think that your performance is driven somewhat by a share gain or do you think you’re kind of holding your own within the current market and your performance is more market-driven?

Ed Feitzinger – EVP, Global Contract Logistics and Distribution: We think that we are gaining a slight amount of share on the ocean side and that we are market-driven in the air side.

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