CHATTANOOGA, Tenn. — U.S. Xpress Enterprises says it is planning to exit its U.S.- Mexico cross border investment as part of its ongoing capital allocation and profit improvement initiatives.
When fully implemented, the plan is expected to reduce current and planned invested capital by approximately $40.million, improve the company’s consolidated operating margin, and offer customers continued access to cross border service through a variable cost alternative, according to Eric Fuller, president and CEO.
In connection with this plan, as well as the disposition of its remaining 10 percent equity investment in a former subsidiary, the company expects to record an approximate $12.3 million non-cash, pre-tax loss on equity investments for the fourth quarter of 2018.
These changes mark the latest step in the company’s continued execution of its strategic overhaul designed to drive operational improvement as U.S. Xpress strives to deliver its third consecutive year of margin improvement in 2019, Fuller said, adding that the plan will be executed in stages over the next several months.
“As part of our ongoing initiatives to improve profitability and enhance shareholder returns, we evaluated our aggregate investment in our U.S.-Mexico operations, including investments south of the border, in Laredo, Texas, and in U.S. assets and personnel required to service this business,” Fuller said. “We concluded that these operations required a comparatively high level of fixed investment per unit of revenue and created lane inefficiency in the U.S., because serving freight to and from the border did not maximize revenue per mile or meet our other network planning priorities. During 2018, the combined Mexico and allocated U.S. operations failed to keep pace with improvements in the Company’s U.S. OTR and Dedicated truckload operations. As a result, the decision to exit this operation was identified as a relatively high return, simple execution initiative. This strategic decision reflects the latest step in the company’s transformation as we methodically evaluate our capital allocation, improve our operational execution, and target industry-leading profitability.”
The company’s cross border business consists of 95 percent equity ownership in Xpress Internacional, S.A. de C.V.
In addition, to serve the business the company maintains fixed investments in the United States consisting of a trucking terminal in Laredo, Texas, approximately 700 incremental dry van trailers, and tractor capacity allocated toward serving freight to and from the border. Including the allocated cost of the U.S. investments and personnel, the cross-border business generated approximately $50 million in revenue but insignificant operating income in 2018.
Fuller said as part of U.S. Xpress’s ongoing transformation, the carrier made the decision to exit its fixed cost investment in the cross border business and sold its investment in the Mexican entity to the existing managers.
The operational transition is expected to be complete during the second quarter of 2019.
The exit involves the following components, which will be executed over the next several months:
- Sale of the company’s 95 percent equity ownership of Xpress Internacional S.A de C.V., for an estimated $4.5 million in cash and an additional $8.5 million in cash to be received over 8.5 years. The equity sale has been completed.
- Closing and sale of the company’s trucking terminal in Laredo, Texas, and disposition of approximately 700 dry van trailers allocated toward the Mexico business as these trailers complete the transition phase. The terminal is valued at an estimated $7 million, and the trailers had been slated for replacement over the next two years at an estimated cost of $20.0 million. This operational transition is anticipated to be completed during 2019.
- Repositioning approximately 300 domestic tractors from loads to and from the border to more profitable loads through network optimization over a transition period, while continuing to offer customers ongoing access to cross-border service on a variable cost basis through relationships with our former partners, anticipated to be completed in the first half of 2019.
Fuller said U.S. Xpress expects to record a non-cash, pre-tax charge of approximately $12.3 million in the fourth quarter of 2018 to reflect the write down of the total investment in Xpress Internacional, which U.S. Xpress had operated since 2007. In addition, the company expects to incur one-time expenses during the first quarter of 2019 related to the transition plan to shut down its domestic infrastructure that supported the cross-border business, this expense is not expected to exceed $4.0 million on a pre-tax basis.
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