Shares of BVI registered UTi Worldwide Inc., global integrated logistics and freight forwarding company, fell 12.6% after the company released information about its plans to implement cost reduction measures, and lowered its 2008 adjusted profit forecast. The company has already reorganized its leadership around its freight forwarding and contract logistics and distribution, and decreased its earnings guidance for fiscal 2008. Other measures planned are seven per cent staff reduction, in order to to streamline company’s operations by exiting underperforming businesses, canceling long-term initiatives and realigning corporate and regional functions.
The BVI company explained these measures are needed due to slower than expected revenue growth due to the slowing economy, and the deterioration of underperforming businesses. To reduce costs, UTi Worldwide will exit its retail distribution business in Africa, the distribution operations in America and other underperforming operations which are not the main. The company will also cancel various long-term initiatives, scale back airfreight charters, and loss-bringing contracts. In order to reduce overhead costs, the company will realign corporate and regional functions.
UTi Worldwide said it has also realigned its executive management structure, with Chief Executive Officer Roger MacFarlane also taking on the function of chief operating officer, John S. Hextall becoming president of the global Freight Forwarding operations, William T. Gates becoming president of the global Contract Logistics and Distribution operations, and some other re-appointments.
In the press release, the BVI company said it expects all the above measures to reduce annual operating costs by the amount about $105-110 million, and net revenues – by $30-40 million. Also, cost cuts are expected to reduce annual net revenues by $75 million to $85 million, and boost earnings per share by 21 cents to 28 cents per year. The company expects a pre-tax restructuring charge of about $15-20 million with the above measures.
It was noted by some analysts that restructuring and management reshuffle planned by the company could make UTi more of a buyout target, yet the increased potential of an acquisition makes the stock more appealing.
While some of these measures have already been implemented and will lead to some immediate cost savings, the main financial benefits are expected to be phased in during the first six months of fiscal year 2009. UTi plans to report its results for the 2008 fourth quarter and fiscal year on March 27, 2008.