YRC's yield game pays off with strong third-quarter performance

And in this corner, coming in with perhaps the most improved financial results in an otherwise subpar quarter for less-than-truckload carriers, it's...YRC Worldwide Inc.!

Following on the heels of a strong second quarter, the Overland Park, Kan.-based carrier posted another round of solid numbers in the third quarter, a period where other LTL carriers either came in slightly below projections or, in the cases of Jones Creek, Ga.-based Saia Inc. and Cudahy, Wis.-based Roadrunner Systems Inc., missed their forecasts badly. In results posted late Thursday, operating income rose to $47.7 million, compared to operating income of $26.7 million in the year-earlier quarter. Revenue was down to $1.24 billion from $1.32 billion, but that may have been a function of its two operating units—long-haul carrier YRC Freight and regional operator YRC Regional—shedding revenue from unprofitable freight.

Indeed, while daily tonnage at YRC Freight dropped 6.2 percent, revenue per shipment rose 7 percent and revenue per hundredweight—a key measure of a carrier's pricing strategy—increased 5.8 percent, all excluding the impact of fuel surcharges. Including fuel surcharges, which have dropped significantly to mirror the decline in diesel-fuel prices, the unit's revenue per shipment gained fractionally, while revenue per hundredweight declined. The unit's operating income nearly doubled, to $16.7 million, on a 6.4-percent drop in revenue. Operating ratio—the ratio of revenues to expenses and an important measure of a carrier's operating efficiency—declined 110 basis points, to 97 percent, a favorable trend.

YRC Freight accounts for 63 percent of YRC's overall revenue, and its well-documented problems over the past seven years twice almost pushed the entire company into bankruptcy protection.

At YRC's three-carrier regional unit, daily tonnage fell 3.5 percent year-over-year. However, revenue per shipment rose 5 percent, while revenue per hundredweight climbed 4.1 percent, excluding the impact of fuel surcharges. Including fuel surcharges, both metrics would have shown modest year-over-year declines. Operating income climbed 37.7 percent on a 5-percent revenue drop, while the operating ratio dropped 230 basis points, to 92 percent.

In a statement, James Welch, the parent's CEO, said the units benefited by "placing pricing improvements ahead of tonnage growth." Welch said the company stayed "disciplined in the quarter," a reference perhaps to maintaining pricing at the expense of market share. Over the past week, carriers like Saia and Roadrunner blamed weak results in part on the industry's aggressive pricing strategies, behavior that got several carriers in trouble in 2008 and 2009 when, ironically, they tried to drive YRC, then the market leader, out of business. This time around, however, it is believed that price cuts are carrier-specific and not widespread across the sector.

In a note today, Thom Albrecht, managing director and transport analyst at investment firm BB&T Capital Markets, said YRC "had the strongest yield improvement in the public LTL universe," an impressive feat given the ongoing weakness in industrial end demand that has curtailed traffic growth across the LTL spectrum. Albrecht noted that at YRC Freight, the average weight per shipment rose for the ninth straight quarter, while at most LTL carriers weight per shipment has contracted for three straight quarters.

Albrecht said that contract-renewal rate increases of 3 percent or better will boost yield at the long-haul unit, which still suffers from unsatisfactory operating ratios with many of its customers. For several years, the unit has struggled with wringing compensatory rates out of its customer base, which is heavily tilted toward large accounts that have demanded lower prices in return for staying with the carrier.

In a later e-mail, Albrecht said YRC Freight and, to a lesser extent, YRC Regional "were so broken a few years ago that just by doing the basics right ... their own momentum can trump the sloppy economic environment by a wide margin, even on a year-over-year basis."