YRC Worldwide Narrows 2nd-Qtr. Loss, Despite Decline in Operating Income

This story appears in the Aug. 12 print edition of Transport Topics.

YRC Worldwide Inc. said it narrowed its second-quarter net loss but that its operating income slipped from the same period a year ago as the company completed streamlining its national less-than-truckload network.

The carrier reported a loss of $13 million, or $1.72 per share, compared with a loss of $22.1 million, or $3.21, in last year’s quarter. Revenue slipped 0.7% to $1.24 billion, YRC said in its Aug. 7 financial report.

“While our performance shows incremental improvement, there is still no doubt that many opportunities remain to make additional progress on our operational and financial results,” CEO James Welch said during the company’s earnings call.

YRC’s quarterly operating income declined to $14.3 million from $15.5 million a year earlier.

The company recorded a $6.3 million charge related to network changes at its national LTL unit, YRC Freight.

Welch described the charge as “a small investment in what we anticipate will be approximately $25 [million] to $30 million in annual savings.”

He also said the business “faced some headwinds” during implementation of the plan, which he called the second-largest network optimization in the Freight division’s history.

The plan, first announced in March and implemented May 19, resulted in the closing of 29 terminals and three distribution centers.

On the earnings call, YRC Freight President Jeffrey Rogers said the end result of the changes is “an enhanced network that is designed to increase density, allow fewer touches of shipments, increase load averages and reduce linehaul miles.”

Rogers noted, however, that implementation of the change was hampered because of increased shipment volumes at the time. “Consequently, service, operations and second-quarter financial performance were adversely affected, but I’ll take that tradeoff for the long-term gains that we anticipate for the future,” he said.

Chief Financial Officer Jamie Pierson told Transport Topics that YRC expects to record an additional charge related to its network optimization in the third quarter, likely in the range of $2 million to $4 million, but added that the company already is starting to see the benefits of the changes.

Quarterly revenue at the YRC Freight division slipped 2.9% to $798 million. The segment’s operating loss widened to $8.5 million, from $5.1 million a year earlier, and its operating ratio worsened to 101.1, from 100.6. Revenue per hundredweight edged up 0.4% to $23.32.

In contrast, at YRC’s regional transportation segment revenue rose 3.5% to $444.9 million. In that segment are LTL haulers Holland, Reddaway and New Penn. The division’s operating income climbed 10% year-over-year to $25.2 million, and operating ratio improved to 94.3 from 94.7 a year ago. Revenue per hundredweight increased 1.5% to $11.30.

Company executives said YRC took delivery of new tractors and trailers during the quarter at each of its four operating companies through a leasing program.

“This is the first meaningful investment in our equipment in four years and the first step in getting back into a more normal [capital expenditure] cadence,” Welch said on the call.

YRC also completed the rollout of 10,000 handheld devices in its pickup-and-delivery operations to improve productivity and customer service.

Its stock price fell to $23.52 on Aug. 7 following the company’s financial report that morning, a drop of $5.06, or 17.7%, from the previous day’s close. The company’s stock had risen sharply since its first-quarter statement, from a close of $7.76 the day before the May 3 report to a high of $35.79 on July 11.

Shortly after YRC’s first-quarter report, Arkansas Best Corp. revealed on May 8 that YRC had approached the company in late March with a proposal to purchase its largest subsidiary, ABF Freight System Inc. In the same filing, Arkansas Best Corp. said it later told YRC in early April that it was “not appropriate” to consider a merger at that time, due in part to labor negotiations.

YRC has since moved on.

“That’s in our rearview mirror,” CFO Pierson said last week. “Today, we are laser-focused on the North American LTL market, and we are not trying to be all things to all people.”

On July 22, YRC filed a statement with the U.S. Securities and Exchange Commission announcing it could potentially offer and sell up to $350 million in securities to repay debt or raise capital.

Pierson said on the conference call last week that YRC was “simply updating [its] filings to provide [options] for the company in case a window of opportunity would present itself to tap the market.”

In a May 8 note to clients of Stifel, Nicolaus & Co., analyst David Ross said he continues to view YRC as “a highly speculative investment, given past dilution, substantial debt burden, large pension liabilities, union labor and lack of a sustainable competitive advantage.”

Ross added, “Operating results at both YRC Freight and the regional companies were below our expectations, but if the company is able to overcome several obstacles, we believe it could claw back to profitability for 2014.”

YRC Worldwide, based in Overland Park, Kan., ranks No. 5 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers.