UTi Worldwide's Miss: Not Necessarily Company Specific

Shares of non-asset based transportation and logistics provider UTi Worldwide (UTIW) fell sharply today after the firm reported fiscal 2007 fourth quarter and year-end financial results:

For the fourth quarter of fiscal 2007, gross revenues increased 31 percent to $951.3 million from $728.2 million in the prior-year fourth quarter. Net revenues also increased 31 percent to $331.2 million for the fourth quarter of fiscal 2007 from $253.7 million in the prior-year fourth quarter. Continued organic growth across all geographic regions, as well as contributions from the company’s March 2006 acquisition of Market Industries, Ltd., contributed to the fiscal 2007 fourth quarter revenue growth. After adjusting for the impact of acquisitions made by the company since November 1, 2005, as well as currency fluctuations on the comparison of UTi’s results, gross and net revenues each grew organically by 14 percent in the fiscal 2007 fourth quarter, when compared with the corresponding period a year ago.Operating income in the fourth quarter of fiscal 2007 rose to $32.8 million versus $17.5 million in the fiscal 2006 fourth quarter. Net income for the fiscal 2007 fourth quarter was $23.6 million, or $0.24 per diluted share, compared with $9.7 million, or $0.10 per diluted share, in the fiscal 2006 fourth quarter.

Consensus estimates called for $0.26 per share on $935 million in revenue. Because the miss related to cost issues rather than top-line growth, investors appeared to treat the miss as company specific, according to this Reuters report:

In a research note R.W. Baird & Co. transportation analyst Jon Langenfeld described the quarter as “disappointing, adding “top-line growth was solid and ahead of our expectations, but elevated costs drove meaningful earnings miss.”

Bear Stearns analyst Edward Wolfe also noted that revenue was stronger than expected, but added “UTIW has not yet straightened out its cost structure.”

However, we wouldn’t be so quick to attribute the revenue gains, more than half of which came from acquisitions, to a strong transportation environment. Recent data have shown a slowdown in trucking, a disappointment from FedEx (FDX), and other signs that fewer goods are being moved about. Meanwhile, the shares of companies similar to UTi such as Large Cap Watch List member Expeditors International (EXPD) and Small Cap and Mid Cap Watch List member Landstar Systems (LSTR) have held up well.

It is quite possible that today’s disappointment will not spread to these other names, and we continue to like the non-asset based transportation names as long-term investment plays. However, in the short term we wouldn’t be surprised to see the weakness spread to more of the transports.

Update: We missed the fact that the railroads also had a setback, but apparently that, too, is company-specific.

Disclosure: author has a short position in Landstar put options at the time of publication.