Fast, free-flowing exchange of information, goods, and services has made the world appear smaller in recent years, and global borders seem less relevant. Heretofore, UTi Worldwide (NASDAQ:UTIW) profited from that shrinkage by offering logistics-related services to help facilitate its customers' international operations. However, since economies everywhere are facing hard times and shipping volumes have dropped as a result, UTi is now shrinking its costs in order to carry on.
So far, so good
It's working. UTi has already started to see the benefits of belt tightening. Despite deteriorating volumes in airfreight forwarding, sales were $1.2 billion in its fiscal 2009 third quarter, up 3% from the same quarter last year. Its margins also held up; net income from continuing operations was $35.8 million, or $0.36 per share.
Prior to last Thursday's announcement, shares of UTi closed under $11, but since then its price has climbed by 20%. Meanwhile, its competitors Expeditors International of Washington (NASDAQ:EXPD) and Hub Group (NASDAQ:HUBG) watched enviously. UTi's management is enthusiastic about the performance of its contract logistics segment, and despite having lost its lucrative Baytown contract with Wal-Mart (NYSE:WMT) this year, it remains focused on attracting new business and maintaining strong client relationships.
Foolish Takeaway
UTi's cost-reduction plan spans all areas of the company from maintaining cash management discipline to lowering operating costs through hiring freezes, travel restrictions, and streamlining operations. It has also begun to shed low-yielding businesses, and it is completely restructuring its IT systems. The company expects to see cost savings between $5 million and $6 million annually once the modifications to its technology organization are fully realized in fiscal 2011. Hopefully for UTi, shipping volumes will have picked back up by then, and it will be able to focus on expanding (rather than shrinking) once again.
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