YRC Worldwide Inc., reporting its first quarterly results since James L. Welch took over as CEO in late July, said today it posted wider year-over-year net and operating losses in its third quarter despite increases in operating revenue and tonnage for its national and regional less-than-truckload (LTL) units.
The Overland Park, Kan.-based carrier said consolidated operating revenue rose 12.3 percent to $1.28 billion. The company posted an operating loss of $24 million, which it said included $12 million in professional fees to handle an extensive third-quarter restructuring and a $15 million non-cash charge for what it called "union employee equity awards."
In the 2010 quarter, YRC reported revenue of $1.14 billion and an operating loss of $19 million, a figure that included $7 million in professional fees.
YRC reported a $120 million net loss in the 2011 quarter, saying the results included a $79 million charge for re-pricing financial instruments known as derivatives. The company reported a $62 million net loss for the third quarter of 2010.
YRC National, the company's long-haul LTL unit that has struggled for several years, posted an 11.5-percent year-over-year gain in operating revenue. Average daily tonnage grew by 4.2 percent, daily shipment count rose 5.5 percent, and revenue per hundredweight—a key metric of profitability as it measures yields on tonnage hauled—rose 7.5 percent. Welch, who started as CEO on July 25, is focusing most of his early efforts on fixing YRC National.
YRC's more successful regional operations posted a 14.3-percent gain in operating revenue on a 5.6-percent increase in average daily tonnage, a 3.6-percent gain in daily shipment count, and an 8.2-percent increase in revenue per hundredweight, the company said.
In a statement accompanying the results, Welch said he was "pleased with the continued year-over-year growth" in volumes at YRC. The company said that as of Sept. 30, it held $163 million in cash and cash equivalents, and had $116 million available out of a $400 million asset-based loan it established as part of its restructuring program earlier this year.
In the past month, YRC named Jeff Rogers, former head of its successful Holland regional unit, as its president, and formally appointed as CFO Jamie Pierson, who had been serving in the post on an interim basis. In addition, YRC announced a major geographic realignment of its sales, marketing, and operations functions in an effort to streamline its organization.
Tough choices
In a research note issued prior to YRC's announcement, David G. Ross, transport analyst at Stifel, Nicolaus & Co. and one of the most ardent bears on YRC, said the company "still has no current equity value" (the stock was trading at five cents a share at mid-day) and a "financial mess out of which it needs to work."
Ross reiterated his concern, first aired in the spring, that YRC cannot extract compensatory pricing from its big national accounts, which refuse to pay more for YRC's services in the knowledge that the carrier could be mOréally wounded if they pull their business.
The analyst added that YRC is faced with the difficult choice of replacing its aging tractor fleet or incurring escalating maintenance costs for upkeep on the equipment it currently has. Ross estimates that it will cost at least $250 million to replace just 20 percent of its rigs, a significant capital expense for a debt-laden company like YRC.
Ross lauded the choice of Welch, a long-time industry veteran who was CEO of the former Yellow Transportation from 2000 to 2007. Yellow was one of the forerunners of YRC, which took its name from the amalgamation of Yellow and Roadway Express, which Yellow bought in 2003.
Ross said Welch has limited time and resources to turn YRC around. However, the analyst said the CEO is "appropriately focused" on fixing the national LTL unit, which Ross said is the "key to the whole story."
