UTi Worldwide (UTIW) Q3 2012 Earnings Call December 01, 2011 11:00 am ET Executives Lawrence R. Samuels - Chief Financial Officer, Principal Accounting Officer, Executive Vice President of Finance and Member of the Management Board Edward G. Feitzinger - Executive Vice President and President of Global Contract Logistics & Distribution Eric W. Kirchner - Chief Executive Officer and Director Jeffrey D. Misakian - Vice President of Investor Relations Analysts Scott H. Group - Wolfe Trahan & Co. David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division Kevin W. Sterling - BB&T Capital Markets, Research Division Glenn Primack Nathan Brochmann - William Blair & Company L.L.C., Research Division Elliott Waller - Jefferies & Company, Inc., Research Division Sterling Adlakha Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division David P. Campbell - Thompson, Davis & Company Matthew Brooklier - Piper Jaffray Companies, Research Division Presentation Operator
Before we begin the presentation, I would like to point out that certain statements made in today's call are not based -- are not historical fact. They may be deemed, therefore, to be forward-looking statements under the Private 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 and 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 W. Kirchner Thank you, Jeff. And good morning, everyone. Both business segments delivered revenue and operating profit growth in a decelerating business environment. Expansion in net revenue per unit of cargo drove most of the Freight Forwarding improvement. Contract Logistics and Distribution delivered double-digit increases in revenue and operating profit on the strength of new business and operational improvement. Ocean freight TEUs turned ahead of the market for the first time in more than a year. Airfreight volumes in the third quarter declined against challenging comparisons a year ago, particularly in the month of October. As you're aware, the overall airfreight market has been contracting since April of this year. We tracked close to the market numbers through September; however, our volume declines worsened in October compared to one of our best months ever in October last year. Lawrence will talk about this in more detail in a few minutes. Yields in net revenue per unit increased over the prior year, primarily due to process improvements that included better buying and success with our gateway initiatives. Declining carrier rates also contributed to the increases. These improvements helped to offset the volume weakness in airfreight and led to an increase in net revenue and an improvement in operating profit in our Freight Forwarding segment.
Overall, our Contract Logistics and Distribution segment turned in a solid third quarter. This segment continued to see volume gains from existing clients and new business wins, especially in our Africa and Asia Pacific regions. Our U.S. Distribution business was also strong again in the third quarter. We continued to work on improving the fundamentals in our Contract Logistics and Distribution business, which led to the better operating performance in the quarter.While all of this is encouraging, the outlook for the fourth quarter is not as bright. Activity is clearly slowing for the industry and for us. Airfreight declines moderated in November, but tonnage will not reach levels that we would typically associate with the peak season. Recent retail sales results in the United States have been encouraging, but it's not yet clear that these results will carry through the entire holiday season. As a global company, we're also affected by economic conditions in other regions. In addition, the timing of Chinese New Year will significantly reduce activity levels out of China during the last 10 days of January. This will adversely impact our fourth quarter results due to the fact that our fiscal year ends January 31. The rate environment is still supportive of yield development in the near-term as capacity remains flat, which provides some cushion in our forwarding operations. But this won't last forever, particularly given the signs that carriers are reducing capacity. In Contract Logistics and Distribution, several of our clients tell us they're forecasting volume declines in their operations in the fourth quarter, particularly in the retail, consumer, chemicals and automotive verticals in the Americas and EMENA regions. In addition, the impact from a weakening rand will impede dollar reported growth in the Africa region. At current exchange levels, this could reduce our fourth quarter dollar reported results by approximately $0.02 to $0.03. We expect that new business wins, especially in Africa and Asia Pacific, will help but will not fully offset the anticipated overall volume declines. Read the rest of this transcript for free on seekingalpha.com