U.S. Xpress Enterprises, Inc. (NYSE:USX) today announced its plan to exit its U.S.-Mexico cross border investment as part of its ongoing capital allocation and profit improvement initiatives. According to reports, 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.
In connection with this plan, as well as the disposition of its remaining 10% equity investment in a former subsidiary, U.S. Xpress expects to record an approximate $12.3 million non-cash, pre-tax loss on equity investments for Q4 2018. These changes mark the latest step in their continued execution of a strategic overhaul designed to drive operational improvement as U.S. Xpress strives to deliver its third consecutive year of margin improvement in 2019. The plan will be executed in stages over the next several months.
In a prepared statement, Eric Fuller, president and CEO, commented, “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. 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% equity ownership in Xpress Internacional, S.A. de C.V. In addition, to serve the business U.S. Xpress maintains fixed investments in the U.S. 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.
As part of U.S. Xpress’s ongoing transformation, they made the decision to exit their 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 Q2 of 2019.
More details of the announcement are forthcoming. U.S. Xpress was not immediately available for comment.