Weakness For YRC Worldwide

YRC Worldwide expects doom and gloom for the U.S. economy in the near term.

On Monday, the trucking giant said it expects to post a third-quarter loss from core operations as further economic weakness drags down volume and prices.

YRC Worldwide also expects to incur reorganization costs of about 6 cents to 8 cents per share, primarily related to employee severance. It will also declare a one-time gain of 70 cents per share related to a streamlining of nonunion employees retirement plans.

Nonetheless, YRC Worldwide said it expects to be in full compliance with all terms of its credit agreement and to have borrowing capacity in excess of $600 million.

"The economy has softened further impacting both volume levels and pricing across our operating companies," said Chairman Bill Zollars. "After a solid second quarter, the third quarter started slowly and has progressively weakened."

YRC said its earnings have also been impacted by investments in combining its national companies, Yellow Transportation and Roadway. In 2003, Yellow acquired Roadway Express to become Yellow Roadway. Then in 2005, Yellow roadway purchased USF and in 2006 became YRC Worldwide.

"We do not see signs of the economy improving in the near term, but as we merge Yellow and Roadway, we expect operating results to show meaningful improvement," said Zollars.

As the U.S. economy has softened so has consumer demand, which translates to less goods being purchased and in turn transported by trucking companies. In addition, the trucking companies get hit by the double whammy of high oil prices, which have forced a large number of retailers to switch to transporting goods by train--another hit to trucking companies.

Total goods carried by trucks in the U.S. fell in July compared with the previous month, marking the first month-over-month decline since April. The trucking industry hauls about 70.0% of manufactured and retail goods in the U.S.

YRC had said in July it expected to earn from $1.05 to $1.15 per share in the third quarter, which includes the retirement plan gain and a charge of 10 to 15 cents related to health and pension costs.

The American Trucking Association's seasonally adjusted tonnage index, which measures the weight of freight hauled by U.S. truckers based on membership surveys, fell 0.3% in July.

ATA Chief Economist Bob Costello predicted that truck tonnage could be volatile in the next few months, as the economy is expected to weaken further, but lower fuel prices and capacity might boost demand.