UTi Worldwide Inc. (UTIW)

F2Q12 (Qtr End 07/31/2011) Earnings Call

September 1, 2011 11:00 am ET

Executives

Jeff Misakian - VP, IR

Eric Kirchner - CEO

Lawrence Samuels - CFO

Ed Feitzinger - EVP, Global Contract Logistics and Distribution

Analysts

Ben Hartford - Robert W. Baird & Company

Matt Brooklier - Piper Jaffray

Nathan Brochmann - William Blair & Company

Tom Wadewitz - JPMorgan

Sterling Adlakha - SunTrust Robinson Humphrey

Scott Group - Wolfe Trahan & Company

Elliott Waller - Jefferies & Company

David Ross - Stifel Nicolaus

Todd Fowler - KeyBanc Capital Markets

David Campbell - Thompson Davis & Company

Kevin Sterling - BB&T Capital Markets

Presentation

Operator

Welcome to the UTi fiscal 2012 second quarter conference call. (Operator Instructions) This conference is being recorded today, September 1, 2011, and I would now like to turn the conference over to Mr. Jeff Misakian, Vice President of Investor Relations.

Jeff Misakian

Thank you, Alisa, and good morning everyone. Welcome to UTi Worldwide's fiscal 2012 second quarter results conference call. Joining us on the call today are Eric Kirchner, Chief Executive Officer; and Lawrence Samuels, Chief Financial Officer.

Before we begin the presentation, I would like to point out that certain statements made in today's call are not historical facts. They may be deemed therefore to be forward-looking statements under the Private Securities 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 & 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, and good morning everyone. Second quarter results reflect solid performance in both our freight forwarding and contract logistics and distribution segments. Yield expansion and improved control over costs drove most of the freight forwarding improvement, while increased activity in contract logistics and margin improvement in our U.S. distribution business led to stronger performance in this segment.

Air freight volumes declined against challenging comparisons from a year ago, but the decrease was less than the contraction in the overall market. A general swiveling in the overall economy and freight environment also contributed to weaker volumes for the entire industry. This is unlikely to change much in the third quarter given the macroeconomic climate. So preliminary volumes for us in August were relatively consistent with the prior year.

Ocean freight TEUs were ahead of last year, performing a little better than expected and in line with the market. Preliminary volumes in August were up slightly compared to August of last year, which was our best volume month of fiscal year 2011.

So far we're seeing mixed signs of a peak season. Yields and net revenue per unit increased over the prior year due to process improvements that include better buying and our gateway initiatives as well as movement in carrier rates. The rate environment remained supporting of the yield development, but comparisons in the second half of the year become more challenging, particularly in the fourth quarter.

Our contract logistics and distribution segment continued to see volume gains from existing clients and new business wins, especially in our Africa and Asia-Pacific regions.

We were particularly pleased to see our U.S. distribution business improve in the second quarter, consistent with the market, but also reflective of our efforts to develop better margins. While these improvements are encouraging, we continue to review our operations as part of our ongoing plan to fix underperforming businesses and contracts.

At this point, I'll ask Lawrence to walk through the financial results. Lawrence?

Lawrence Samuels

Thank you, Eric. Net income attributable to common shareholders in the fiscal 2012 second quarter was $0.22 per diluted share compared to $0.19 per diluted share recorded in the same period last year. When adjusted for severance costs, net income attributable to common shareholders was $0.24 per diluted share.

Revenue and net revenue increased 12.7% and 17% respectively in the fiscal 2012 second quarter compared to the same period last year. The increase in revenues reflects the translation of foreign currencies into the weaker U.S. dollar for reporting purposes, increased net revenue per unit of cargo, greater activity in contract logistics and distribution and higher fuel surcharges which we passed through to clients. On an organic basis, net revenue increased 8.4% in the second quarter.

We incurred severance cost of $3.5 million in the second quarter, primarily related to our transformation activities and proactive efforts to keep overall costs in line. These costs are reported separately in our statement of operations. We have also included reconciliations of GAAP to non-GAAP results in the tables in today's press release and posted more details on our website.

The rest of my remarks will refer to our results as adjusted to exclude these costs.

Adjusted operating expenses less purchased transportation costs were 15.9% higher than the same period last year. On an organic basis, adjusted operating expenses increased by 7.4% based on the comparable increase in net revenue.

Our adjusted operating margin in the fiscal 2012 second quarter was 9.7%, an increase over the 8.9% margin in the second quarter last year. The improvement was primarily due to increased activity and higher net revenue per unit, partially offset by increased expenses.

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