While the Internet may have been the death knell for travel agents catering to human beings, growing international trade has been a boon to cargo travel agent UTi Worldwide (NASDAQ:UTIW). As a non-asset-based global logistics maven, UTi specializes in air and ocean freight forwarding, as well as contract logistics and custom brokerage services.
One need only take a gander at a five-year stock chart to see that investors have forwarded this stock along quite enthusiastically as the company has grown its business. Results for the fourth quarter give some inkling regarding the "how" and "why" of that growth. Total net revenues climbed 32% in the period and operating income was up a whopping 77%.
Although the company faced cost pressures in both the air and ocean freight businesses, those segments still grew nicely -- with air posting a 28% increase in net revenue and ocean growing 30%. Elsewhere, the contract logistics business grew net revenue by 41% for the quarter and ended the year as the largest contributor to net revenue (helped in part by the company's acquisitions of IHD and Unigistix earlier in the year).
Better still, the company did not have to exploit its co-owners to achieve that growth -- share dilution was up a rather shareholder-friendly 1.4% versus last year.
If there is a fly in the ointment, it's that free cash flow didn't grow very much for the full year of 2004. Operating cash flow came in at about $71 million (vs. $66 million last year), and free cash flow amounted to $50 million -- only about 6% higher than last year's $47 million. The biggest culprit was a larger increase of trade receivables than trade payables -- a circumstance that is not surprising (nor terribly worrisome) given the company's growth, but a metric that bears watching in the future.
Although valuation is certainly hefty on these shares (especially considering that the company's apparent growth is boosted by acquisitions), I for one wouldn't volunteer to step in front of them. Whether organic or acquired, the growth at UTi is strong and prospects for the future look good -- international trade is only going to increase over time, and a new contract with Wal-Mart (NYSE:WMT) could make a big contribution.
What's more, none of UTi's peers -- Expeditors International (NASDAQ:EXPD), EGL (NASDAQ:EAGL), C.H. Robinson (NASDAQ:CHRW), or even UPS (NYSE:UPS) -- are exactly "cheap," and UTi's operating margin and return on equity are certainly on par or superior to most of that group.
Investors looking to play international trade should take a look at UTi, but that high valuation suggests to this Fool that strong future growth is already baked in to the story.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long, nor short the shares).
