BEST Inc. (NYSE: BEST), a leading logistics provider in China, released its financial results for the first quarter on Wednesday, showing 30% revenue growth and narrowed losses.
For BEST, the three months through March are evidence of the positive effects of the company’s refocusing strategy launched in late 2020. BEST has been working on cutting expenses and focusing on its core units: Express, Freight, Supply Chain Management, and Global, as CFO Gloria Fan demonstrated in the March interview with CapitalWatch.
Fan also laid out a clear path to profitability for each of the core units, while noting that the first quarter – China’s main holiday season – is historically non-profitable for BEST. Today, investors are seeing the results.
Revenue reached $991.6 million in the first quarter, with the Express segment accounting for about 68% of the total. The Freight unit, which made up nearly 14% of revenue, surged 71% year-over-year. The biggest growth was in the Global and “others” segments, both doubling in revenue from a year ago. “Others” mainly refers to the trucking brokerage platform UCargo, which counted 185,676 transactions in the first quarter, up 65% from the first quarter of 2020, according to BEST.
Losses narrowed 10% year-over-year to $92.3 million, or 24 cents per share. Excluding share-based compensation expenses, amortization of intangible assets resulting from business acquisitions, and fair value change of equity investments, adjusted losses came in at $88.7 million.
Developments by Unit
BEST also noted some highlights in each of its core units. BEST Express recorded parcel volume growth of 34% year-over-year, though the overall performance was offset by a decline in the average selling price (ASP) per parcel. In this unit, BEST said it has focused on “optimizing product structure, improving network stability and flexibility, as well as enhancing service quality and customer experience.”
Johnny Chou, BEST’s founder, chairman, and CEO, said in the statement today that the company expects the turnaround at Express to take between six to nine months.
"For Express, our strategies are on the right track, and the rapidly evolving competitive landscape requires us to quicken the pace of our action,” Chou said. “Our accelerated measures will focus on networking stability and service quality by optimizing the structure of products, customers and franchisee partners, in order to create a clear path to sustainable profitability."
Further, in the call with analysts today, Chou showed that BEST Express has expanded from holding 1% of the market share in 2011 to 12.4% by the end of 2019.
On the Freight segment, Chou told analysts: “Freight is doing extremely well, not just in the industry market position but as well as its profitability, growth, everything.” The Freight unit has been growing at a rate higher than the industry average. Volume in this segment surged 81% from the same period last year, according to the report. The ASP declined 5% and the average cost per ton was down 21%.
As to Supply Chain Management, orders fulfilled by cloud OFCs rose 21% to 100.8 million in the first quarter and franchised OFCs recorded a 31% order increase year-over-year. The network consisted of 348 franchises, up 15%. Gross margin in this segment increased to 5.4% from 0.8% a year ago, the report said.
BEST continues to grow its international presence through its Global unit. In the first quarter, Southeast Asia parcel volume surged 249% year-over-year to 30.8 million. Gross margin improved by 22.2 percentage points, BEST said.
Focus on Profitability
The company also improved its ratio-to-revenue of selling, general, and administrative expenses as a result of its cost-cutting measures. In the first quarter, sg&a made up 6.4% of total revenues compared with 7.7% of revenue in the same quarter of 2020. R&D expenses recorded a 0.2 percentage point improvement in the to-revenue ratio.
Fan commented in the statement today, saying BEST will continue to focus on “cost reduction across the entire organization, including unit cost structure optimization for Express and Freight, as well as the streamlining of SG&A expenses.”
She further said, “As we navigate through the current environment, we are making various strategic evaluations and are prepared to take appropriate actions to strengthen our balance sheet and liquidity to support our strategic refocusing plan. In particular, we are looking at financing options in relation to certain of our business units, and we will provide details as necessary or appropriate if any definitive step is taken."
The company did not specify the details of the new funding plan. Yet, the worst of the pandemic is behind, the logistics industry is recuperating worldwide, and BEST is ready to reap the benefits and turn its luck around in China and cross-border delivery.
In the call with analysts on Wednesday, Chou stressed BEST’s efforts in returning to profitability and improving the margins this year. He noted the company’s move to an optimized product structure, new pricing, and improvement in the franchise business.
In the full year 2021, BEST expects to generate between 34 billion to 36 billion yuan.
In March, Fan told CW: “The worst is behind us. We are now focused on strengthening our fundamentals, balancing our network and improving the quality of our services, as well as our last-mile coverage.”
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