Agility Q1 profits tumble 52%
Agility Logistics, a global provider of warehousing and freight management services, said Sunday its first quarter net income fell 52 percent to 17.5 million Kuwaiti dinars ($62 million) from 37 million dinars a year earlier.
Operating income fell 55 percent to 18.9 million dinar from the fourth quarter of 2009.
Agility is in the midst of defending itself from fraud charges by the U.S. government for its work supplying food and groceries to the military in Iraq and Kuwait. Agility is temporarily suspended from bidding on new contracts or extending existing contracts with the U.S. government. The company is trying to negotiate a settlement with the government that would allow its Defense & Government Services (DGS) division to become eligible again for government work.
The Kuwait-based company said it expected profits to decline the rest of the year as lucrative Defense Department contracts wind down without prospects for new or follow-on contracts.
Gross revenue fell 14.4 percent to 403 million dinar ($1.4 billion) during the first three months of the year versus the last three months of 2009. The condensed financial results did not provide all details normally found in earnings reports.
DGS revenue within that period slipped 28.8 percent to 131.7 million dinar due to falling volumes as U.S. troops withdraw from Iraq and the lack of replacement contracts, Agility said.
The Global Integrated Logistics division, which serves the commercial sector, experienced a 5.8 percent drop in gross revenue to 279.4 million dinar, which it attributed to normal peak season effect at the end of each year. Revenue was up 14 percent compared to the first quarter of 2009. Net revenue fell 17.8 percent quarter-to-quarter because of the higher prices paid for ocean and air transportation as carriers raised rates or surcharges to make up for earlier losses. Agility said a slower-than-expected recover from the global recession has impacted the business too.
Agility Chairman Tarek Sultan said the company will focus this year on controlling overhead costs, organic growth and yield maximization on core trade lanes as it pursues a strict cash preservation strategy.
'We expect that free cash flow will be the key metric to guide us on the health of the business,' he said. During the first quarter, Agility decreased operating expenses by 9 million dinar ($30.8 million) versus the previous quarter.
Sultan acknowledged the DGS division faces an uncertain future because of its legal case.
'If the company is able to settle the dispute, then DGS will focus on aggressively rebuilding its business, reinvigorating business development and customer outreach. If we cannot reach a mutually agreeable settlement, then we would need to assess all strategic options for the DGS business. For now, the situation is fluid and no decision has been made, but we have contingency plans in place,' he said.
The loss of lucrative U.S. military contracts has increased the need for the commercial logistics operation to grow faster, Sultan said.