YRC Shows Third-Quarter Profit With Regional Unit’s Help
This story appears in the Nov. 12 print edition of Transport Topics.
YRC Worldwide Inc. returned to the ranks of profit-making less-than-truckload carriers in the third quarter, riding the improved performance at its regional trucking unit and long-awaited positive results at its national freight service.
Net income of $3.0 million was reported on Nov. 2, after a third-quarter 2011 loss of $122.6 million. Revenue fell 3.1% to $1.24 billion. YRC’s latest corporate-level profit, in the fourth quarter of 2010, was helped by an income tax benefit.
Earnings before interest and taxes at the regional business more than doubled, topping $27 million. The national unit posted operating income of $2.8 million, the first profit in four years, other than a second quarter 2010 result that was attributable to a one-time gain.
“YRC Regional was the rock star, with the second-best reported asset-based LTL operating ratio (93.5) behind Old Dominion,” said a report last week by David Ross, a Stifel, Nicolaus & Co. analyst.
The regional unit’s performance combined a 0.3% rise in tonnage with a 2.9% boost in revenue per 100 pounds of freight to $11.37.
At YRC Regional, revenue rose 3.1% to $417.6 million. Its operating ratio improved even faster than the national unit, moving to 93.5 from 96.9.
“For the last several quarters, we’ve been waiting for YRC Freight to get tough with some of its large national accounts,” said Ross, noting that some of those accounts were major money-losers. “The 3.4% year-over-year yield increase took losing some business, as tonnage declined 4.6% per day year-over-year.”
At the national unit, revenue per 100 pounds of freight rose to $23.74, a 2.2% improvement over the second quarter of this year. Its operating ratio was 99.7, compared with 102.0 in the 2011 quarter.
The YRC Freight profit from national LTL service compared with a $16.7 million operating loss in the 2011 period. YRC Freight revenue was $819.5 million in the third quarter.
“Management sees a ‘significant’ margin opportunity at YRC Freight, assuming the improved safety performance continues as this improvement lowers both workers’ comp and cargo casualty claims expense as well as drives better service,” said a report from Credit Suisse analyst Chris Ceraso.
Balanced against the improvement was commentary from the company and other analysts that indicated the company needed to move faster.
“We still have a lot to do,” CEO James Welch said on a conference call. “We made a lot of improvement in service at YRC Freight. We are not where we want to be with our service from a network standpoint.”
“We have made gigantic strides,” said Welch, who became CEO in July of last year. “What we inherited was not the old Yellow or Roadway [operations]. It was a discombobulated mess.”
YRC, which ranks No. 4 on the Transport Topics Top 100 For-Hire Carriers in the United States and Canada, today is about half the size by revenue of the $10 billion yearly revenue company when Welch left in 2007. Between his departure and return, YRC, Overland Park, Kan., lost more than $2 billion.
“The path ahead remains challenging,” Ceraso’s report said. “Growth will be difficult as the company lacks adequate cash flow needed to fund both maintenance and growth capital expenditures.”
YRC’s results also showed a loss of $4.30 per share in the third quarter, which factored in the costs related to converting debt to shares. Excluding that calculation that assumed all possible shares were issued, the company’s profit on a per-share basis was 40 cents.
The results posted by YRC capped the cycle of third-quarter earnings released by less-than-truckload companies that were equally balanced between gainers and losers.
Earnings rose at Old Dominion Freight Line, Saia and Roadrunner Transportation, but fell at Con-way Freight, ABF Freight System and Vitran. UPS Freight reported higher revenue but didn’t disclose quarterly profit performance.
