UTi Worldwide Earnings Call INSIGHTS: September and October Outlook, IATA Numbers

On Thursday, UTi Worldwide, Inc. (NASDAQ:UTIW) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

September and October Outlook

Ben Hartford – Robert W Baird & Company: Eric could you provide a little bit more context in terms of your outlook September and October, you talked about some potential for airfreight rates to rise in upcoming weeks and months given some of these product rollouts, but no signs of peak, broadly it sounds like there is some mixed bags you have these product launches in September and October that will help, but then you kind of fall back into the weakness from November until February, so can you provide a little bit more context in terms of what you’re seeing over the next three to six months?

Eric W. Kirchner – CEO: Sure. We don’t handle a lot of this high-tech business. So, it probably won’t affect us in terms of an uptick in our volumes, where we’re focused is ensuring that we have adequate capacity for our existing client base and we’re confident that we’ve got that covered. We learned through some contacts that there are estimated to be over 70 charters already booked or committed for some of that high-tech activity. So, that would tend to indicate that with that much additional capacity specifically targeted toward those launches coming into the market, I think that’s supposed to happen over about a six week period. The commercial capacity while it will obviously be consumed to some extent in limited markets by this tech launches still is probably adequate to cover the general market need. So, with respect to a six month forward look, what we’re trying to do is just make sure that we’re focused on maintaining our costs on the operating side and then being prepared to react to any opportunities on – this is more specifically toward airfreight and react to any opportunities to gain new business. So, we’re focused at targeted, but responsible business acquisition in this timeframe. I don’t expect to have a lot of tailwind from general marketer macroeconomic conditions in, and we’re just preparing to operate the business without the assumption of any peak season either in air or ocean.

Ben Hartford – Robert W Baird & Company: If I can ask follow-on, just on that point talking about the relationship between airfreight rates and ocean freight rates, that gap has narrowed meaningfully over the past six months given what ocean freight rates have done and air freight rates have been flat to down. So, you talked a lot about this trade down from air to ocean you’ve seen that over the past 12 to 24 months does the narrowing of the gap between air freight rates and ocean freight rates slow the pace of that trade down moving forward. How are customers thinking about that relationship?

Eric W. Kirchner – CEO: The third factor in that, Ben, would be cost of capital. So, I think that the other thing we’ve seen is certain customers that would not normally consider ocean as an option because of the extended transit time. Even if they’re able to save less in an ocean versus air comparison than they might have in the past they are still able to save something and if they’re able to do that and still operate their supply chains effectively we would expect that to happen. So, the commoditization of the transportation spend has been challenging thing to deal with because again you have to balance – the client has to balance out and trade-off service for price. We’ve had some interesting examples recently 4 or 5 in fact where we had some business. We lost that business due to a lower bid by a competitor and then that business has come back to us because the service that was delivered by the competitor at the lower price was not adequate to meet clients need. So, we are trying to be balanced and take the prudent approach to be as aggressive as we can on the price side so that we are able to offer value to the customer base, but not go to the extent that we can’t deliver on the service commitment that we give to our client. So, I don’t sense that even though the gaps narrowed between air and ocean to some degree that that would slow the trade down if the service and transit time commitments that can be delivered by ocean are adequate to meet the clients’ needs.

IATA Numbers

William Greene – Morgan Stanley: Eric, I’ve heard you sort of opine on this in the past, but I’m just kind of curious if you have any color on the disconnect between what seems to be going on with some of the forwarder trends on air and the broader market trends. When you look at metrics like IATA and what not we don’t see the kind of trends that you are showing and so I don’t know where the – is it just the markets that you are in are underperforming or is it that the customers that you have are losing share or something, because it – or maybe it’s the integrators are taking a lot of share, but I just – I don’t see why there’s such a large disconnect?

Eric W. Kirchner – CEO: We’ve been curious as well in terms of the divergence between many of our key competitors reported results and then and what the IATA’s numbers shows. So, we don’t have anything that’s conclusive at this point. We actually did reach out to IATA directly to better understand the composition of their numbers, but we were toward the low end of the peer group with regard to volume changes in airfreight, part of it probably relates to the trade lanes we’re in. One of our key competitors, I think, was down a little bit more than us and they’re more heavily weighted to export from China or export from Asia. So there is a trade lane effect and we still have not gotten a really good feel for why the IATA numbers don’t seem to be tracking along with the competitors that we normally compare ourselves against. The correlation’s not as tight as it was for many years, so I don’t have a good answer. I think, many of the, if not all the integrated numbers are in IATA’s numbers. So, the only thing that could imply would be that there’s more freight moving on integrated aircraft and packages, that’s one possible conclusion or another conclusion is perishables which we don’t – most of the forwarders don’t get heavily involved in perishables that fly, maybe it being more volume produced flying on IATA carriers but we don’t have a good answer.

William Greene – Morgan Stanley: One quick clarification on ocean, the gross margins haven’t moved that much year-over-year in the first half of the fiscal year, but the rates have gone up a lot. Does that mean if rates come down, you wouldn’t actually get an expansion in the margin, just because of the way you manage it?

Lawrence R. Samuels – EVP and CFO: We’ve tried to – obviously our clients expect us to make a margin but they expect us to make a margin and then help them manage their supply chains and reflect what the market rates are. So there’s just the pure effect of the math that if we maintain the same absolute margins and the rates come down. I am sorry, the same absolute net revenue per TEU and the rates come down and the margins go up. I think that we try to be as transparent as possible and they show that we obviously reflect the current market conditions.