YRC Narrows 4th-Qtr. Loss, Posts 2012 Operating Profit

This story appears in the Feb. 18 print edition of Transport Topics.

YRC Worldwide Inc. said it recorded the first annual operating profit since 2006 and narrowed its fourth-quarter net loss to $35.3 million.

The less-than-truckload fleet posted $24.1 million of 2012 operating income, which excludes taxes and interest, compared with a $138.2 million operating loss in 2011. YRC was helped by $30 million of operating income in the fourth quarter, when revenue fell 3.6% in 2012 to $1.17 billion. The fourth quarter 2011 net loss was $84.2 million.

“This is an accomplishment that many of our competitors, several analysts and some of the financial world said would never happen,” CEO James Welch said on a Feb. 8 conference call. “We are still a long way from being satisfied with the financial results.”

YRC Freight, the national LTL unit, accounted for most of the fourth-quarter improvement, posting $21.1 million in operating income. Its operating ratio improved to 97.3 from 103.3 in the fourth quarter of 2011.

YRC began to lose money in 2007 when freight levels dropped off and costs rose. After that, losses mounted, topping $1 billion annually, and YRC skirted bankruptcy before its fortunes began to improve in 2011.

The turnaround at YRC Freight resulted from lowering costs by $74 million, or 9%. Welch attributed that result to productivity improvements such as more consistent pickups and deliveries and lower injury costs. YRC Freight’s revenue slipped 3.4% to $777.2 million.

YRC Freight also improved on a sequential basis. The $21.1 million in operating income during the fourth quarter at YRC Freight far outpaced the $2.8 million of third-quarter 2012 operating income.

Asked about YRC Freight’s turnaround, Welch told Transport Topics that “bringing back Maynard Skarka made a huge difference. He has driven a lot of consistency into the operation.”

Skarka, now the chief operations officer at YRC Freight, left YRC in 2010 and returned last year to rejoin Welch, who became CEO in July 2011.

YRC Regional raised revenue 2.5% to $391.4 million, and operating profit improved to $8.4 million from $6.9 million.

However, not all regional unit trends were positive.

The fourth-quarter operating ratio of 97.9 was worse than the 93.5 posted in the third quarter of 2012, when operating income was $27.2 million.

Welch told TT part of the reason for the regional’s fourth-quarter results was the effect of Superstorm Sandy on the New Penn LTL operation, whose 22 terminals were directly in the storm’s path. Workers’ compensation cost accruals at the Holland unit in the Midwest also hurt, he said.

Analysts praised the improvement while highlighting other needed steps.

“The company needs to continue driving margin expansion to cover interest expense as well as refresh its fleet over time,” said Justin Yagerman, a Deutsche Bank analyst.

“The path ahead remains challenging,” said analyst Arthur Hatfield at Raymond James. “Growth will be difficult as the company lacks adequate cash flow needed to fund both maintenance and growth capital expenditures.”

For the full-year, YRC lost $140.4 million, or $19.20 per share, improving from a net loss of $409.3 million, or $196.12 per share in 2011. Annual revenue fell 0.4% to $4.85 billion.

Welch tied the improvement to “the resurgent attitude of the employees.”

“When I came back, this was a downtrodden and beaten down company,” Welch said. “There were a lot of long-faced, downtrodden employees who had almost given up.

YRC, which is based in Overland Park, Kan. ranks No. 4 on the Transport Topics Top 100 listing of the largest for-hire carriers in the United States and Canada.