Monday, April 13, 2009

Analyst lowers forecast for YRC Worldwide

An analyst cut his earnings estimates for YRC Worldwide Inc. following a presentation last week in which YRC detailed accelerating shipping volume declines.

In a Monday note reacting to the presentation, New York City-based analyst Lee Klaskow of Longbow Research cut his first-quarter earnings-per-share estimates, excluding nonrecurring items, from a loss of $1.40 to a loss of $1.70. He cut his full-year earnings estimate from a loss of $2.31 to a loss of $2.71, and cut the 2010 estimate from earnings of 18 cents to earnings of 4 cents.

YRC shipping volumes in the first quarter dropped 29 percent compared with the same period of 2008 as the economy weighed on customers, the Overland Park-based trucking company (Nasdaq: YRCW) said in the presentation, filed Monday with the Securities and Exchange Commission. The company attributed 15 percent of that to the economy, 3 percent to business mix changes and 11 percent to volume diversion due to integration and financial concerns.

Volumes had fallen 15 percent in the fourth quarter and 9 percent in the third quarter compared with the respective prior-year periods.

“The biggest negative surprise for us was the magnitude in tonnage decline during the (first quarter),” Klaskow wrote, attributing drops primarily to increasingly competitive pricing in the sector.

Klaskow wrote that several of YRC’s largest customers were at the presentation and seemed to be standing by the company. Despite slashing earnings estimates, Klaskow maintained a neutral rating for YRC.

“We believe the restructuring and network integration are steps in the right direction, but were a long time coming,” he wrote. “Assuming we see some modest (gross domestic product) growth in 2010, we believe YRC will be able to weather the current economic storm; however, it will emerge a much smaller entity.”

A better business mix is beginning to improve revenue trends, YRC said in the presentation. In addition, YRC has made internal cost savings and integrated two subsidiaries, measures expected to save about $500 million in operating expenses this year. YRC expects to cut capital expenditures from about $249 million last year to about $130 million this year.

Falling fuel prices have led to the lowest fuel surcharge since 2005, making it difficult to compare first-quarter revenue per hundred pounds of goods with the year-ago period, the presentation said. The fuel surcharge was 12.8 percent in the first quarter, compared with 25.8 percent in the same period of 2008.

The integration of Yellow and Roadway prompted some technical issues, but service has improved and is close to prior-integration levels, the company said in the presentation, and productivity has made major gains.

The economy continues to be very weak with no major signs that improvement will come soon, according to the presentation. However, YRC — a large player in an industry that leads economic downturns and recoveries — has seen some indications of hitting the bottom, though YRC said it’s too early for those signs to be conclusive.

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