YRC Reports $44 Mln. Loss, Awaits Word on Labor Talks

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

YRC Worldwide Inc. last week reported a $44.4 million loss in the third quarter as the less-than-truckload carrier awaited word on a request for formal labor talks aimed at cementing future cost cuts.

The latest loss, equal to $4.45 per share, deteriorated from third-quarter 2012 results that showed a $6.2 million loss from operations. In the year-ago quarter, YRC posted a profit related to a tax benefit.

Revenue increased 1.3% to $1.25 billion as YRC Regional moved more freight.

“Our third-quarter performance was hindered by declines in service, manpower shortages and declines in yield,” CEO James Welch said. He described the situation as “a rather large speed bump” after eight straight quarters of year-over-year narrowing of losses.

He made the comments during a conference call and added that steps have been taken to restore service and win back business.

Meanwhile, the only unprofitable publicly traded less-than-truckload carrier was awaiting an official response from the Teamsters union to its request for formal talks aimed at tacking four years onto the contract set to expire in 2015.

Carrier officials told union members at a Nov. 5 meeting a longer contract was needed to satisfy lenders and refinance debt. More than $1 billion of YRC debt matures by March 2015.

YRC said in a Nov. 12 statement that “we understand that local unions have indicated support” for formal talks. However, the union didn’t respond to requests for confirmation.

Teamsters at YRC have taken a 15% pay cut for four years as well as pension-contribution reductions. Debt was refinanced multiple times to keep the company afloat during six years of operating losses.

YRC tied the latest loss to several factors related to service changes during the quarter that were designed to reduce expenses, including shipment declines.

Troubles with the operational change, intended to save around $30 million annually, pushed national unit YRC Freight to a $9.7 million loss before interest and taxes, compared with a $2.8 million profit on that basis in the 2012 period. Revenue fell 1.3% to $808.7 million.

Operating income slipped at YRC Regional to $20 million from $27.2 million. Revenue rose 6.4% to $444 million, primarily because tonnage per day rose 6%.

YRC reported earnings a day after Arkansas Best Corp.’s ABF Freight LTL said operating profit doubled, completing a cycle of improvement at all other publicly traded LTL fleets.

Welch said that the reversals cost former YRC Freight President Jeff Rogers his job. Rogers left in September, and Welch took over the top post.

Driver shortages resulted when 1,100 positions were transferred to different terminals as YRC trimmed 32 of them and not enough people made the move to fill the jobs.

Summer vacations made the situation worse, Welch said, driving up overtime pay and forcing the company to use other carriers.

Increases of $10.8 million in wage costs and $12.2 million in purchased transportation were tied to Freight’s operating problems and costs to move more freight at Regional, said Jamie Pierson, the chief financial officer.

As customers left, rates fell as well, dropping 2.2% at a time when rivals raised prices.

There were other difficulties, Welch said, including higher injury costs, primarily at the regional unit and a lack of shipment inspection personnel.

The turmoil delivered a negative blow to YRC shares, which fell 25% to just over $7 on the day after the earnings report. Four months ago, YRC shares topped $35, and they have been sliding since.

Pierson was optimistic in a Nov. 13 interview with Transport Topics. While he expressed confidence that formal talks would begin “soon,” he didn’t specify a date.

“We have made a ton of progress in the last couple of years,” he said. “We are in so much better shape today. Admittedly, we didn’t execute the change of operations well. James has a very clearly articulated 90-day plan to get them back on track at Freight.”

Welch said shipments last month topped October 2012, and internal service metrics had nearly rebounded to levels before the network changes began.

The losses forced YRC to cut capital spending on equipment and amend its credit agreement to stay compliant with debt covenants, Pierson said.

The nine-month loss narrowed to $84 million from $101.2 million. Revenue dipped 0.7% to $3.66 billion.