YRCW Sees $39.1 Million 2Q Loss, But 1st Operating Gain Since ’08

Less-than-truckload giant YRC Worldwide Inc. reported a second-quarter loss of $39.1 million, but said it had its first operating profit since 2008 in the second quarter and announced a restructuring that makes lenders the majority owners of the carrier.

While operating results improved, the corporation had a loss because of $40.0 million in interest costs.

The July 22 announcements showed operating in-come of $10.6 million at the national trucking unit and $14.7 million at the regional unit. The results excluded taxes and interest and were achieved as revenue rose 12% to $1.26 billion.

As part of the move that followed more than six months of talks, YRC also elected a new board of directors and named a new CEO, James Welch, who returned to the company after a 54-month absence.

“With positive operating income, customers that are continuing to return, pricing discipline and the restructuring, YRC is well-positioned for success,” said former CEO William Zollars, who retired on July 22 at the conclusion of the restructuring and was speaking on a conference call.

Tons shipped per day rose 6.2% at the national unit and 8.1% at the regional unit, and revenue per hundred pounds of freight climbed 6% at national and 6.5% at regional.

The LTL operating ratios were 99.2 and 95.9 at the national and regional carrier, respectively.

While the LTL units improved, YRC’s truckload business continued to sag, losing $3.7 million from operations and posting a 113.8 operating ratio.

Wall Street analysts agreed that the latest earnings report represented solid progress from last year’s second quarter, when the LTL trucking units combined lost $27.1 million.

“LTL industry fundamentals continued to improve, and YRCW made solid volume gains,” said a July 25 report by Dahlman Rose analyst Jason Seidl. “Pricing should continue to improve, as YRCW catches up to its competitors and continues to focus on improving the customer mix.”

“YRCW, like the other LTLs, remains focused on yields over market share, and so its existence is not upsetting the market currently and we don’t expect that to change in the near term,” Wolfe Trahan analyst Ed Wolfe said in a July 26 report.

The restructuring of YRC’s debt will leave lenders owning nearly 75% of the company, with the Teamsters owning 25% and current investors no more than 2.5. Details of the restructuring matched the terms outlined on April 29.

YRC will get $100 million in cash right away to shore up its liquidity and could get another $140 million in the future in connection with a new issue of convertible stock and notes. The company will be issuing two groups of notes paying 10% interest and maturing in 2015.

YRC, which also gained access to a $400 million loan secured by its assets, will still have $1.29 billion in outstanding debt. However, the long-term debt that matures in less than a year will be slashed from $802.1 million to just $8.0 million.

The number of shares in the restructured company are slated to be at least 1.9 billion and could be nearly 6 billion if convertible shares are turned into stock. Currently, YRC has fewer than 50 million shares outstanding.

Wolfe said he wasn’t convinced that the new moves would stave off future financial troubles.

“New cash needs post-recapitalization for union pension expense, cash interest payments and capital expenditures [are] likely [to] add about $80 million per quarter of incremental cash use going forward, which means YRCW could be out of cash again within three or four quarters at its current run-rate,” Wolfe said.

“YRC Worldwide has accomplished what the cynics said couldn’t be done,” said John Lamar, chief restructuring officer and lead director of YRCW, who stepped down on July 22. “We’ve done exactly what we set out to do two years ago: YRC Worldwide and our brands are positioned for long-term success.”

In the restructuring, James Hoffman becomes chairman of the board, replacing Lamar. Hoffman is a former president of Alliant Energy Resources, a Wisconsin-based firm that provides electric power to homes and businesses in that state and the surrounding area.

Other board members include Raymond Bromark, a certified public accountant and retired PricewaterhouseCoopers LLP official; Douglas Carty, former president and CEO of Canadian school bus operator Laidlaw Education Services; and Matthew Doheny, president of investment firm North Country Capital LLC.

Other board members are Robert Friedman, senior managing director at investment firm Blackstone Group, LP; Michael Kneeland, president and CEO of United Rentals Inc.; Harry Wilson, CEO of MAEVA Advisors, LLC; and Jim Winestock, a former senior vice president at UPS Inc.

Wilson and Carty are the representatives selected by the union to hold seats on the board.