Thursday, May 21, 2009

Trucking firm’s parent in trouble

New Penn Motor Express’ parent company is in dire financial straits, leaving the future of the South Lebanon Township trucking firm in doubt.
Late last week, Kansas-based YRC Worldwide Inc. said it will ask for $1 billion in federal bailout funds.

Two analysts don’t believe the nation’s largest publicly traded trucking company can survive.

“We have a difficult time seeing how the math works here to restore the company to profitability,” David Ross and John Larkin wrote in a Stifel Nicolaus research report. “It has already had its employees take a 10 percent wage cut. Plus, we do not see industry volumes rebounding this year and industry pricing remains very competitive.”

Ross told The Associated Press on Friday that the chance YRC will get bailout money is “very slim.”

“TARP (Troubled Asset Relief Program) was made for financial institutions, not to bail out a trucking company,” Ross told AP. “If YRC (received a bailout) that would just open up the floodgates for other struggling companies to ask for money, too.”

New Penn employs more than 2,000 people and operates a fleet of more than 750 tractors and 1,700 trailers. It is “widely regarded as one of the most efficiently operated carriers in the industry,” according to a YRC statement issued Tuesday in response to questions from the Lebanon Daily News.

New Penn has a network of 23 service centers in the northeastern

U.S., Quebec and Puerto Rico.
YRC had $8.9 billion in revenue in 2008. It employs about 49,000 people. Included among its operating companies are Yellow Transportation and Roadway Express, which are being integrated, New Penn Motor Express, USF Reddaway, USF Holland, USF Glen Moore and YRC Logistics.

On May 11, YRC reported a $257 million quarterly loss, compared to a loss of $46 million in the first quarter of 2008. YRC booked $164 million in charges for the quarter related to integrating its Yellow and Roadway divisions and laid off more than 3,000 workers.

On Friday, YRC announced it had reached an agreement with its banking group that will enable it to stay within the terms of its debt.

While the amendment with its lenders will help, the company is still staring at about $2 billion in pension obligations from a multi-employer plan, the Wall Street Journal reported. Bill Zollars, chief executive officer for YRC, said those obligations are unfair because YRC must pay for employees who never worked for the company.

Ross disagreed that seeking TARP money to solve the pension problem “is the way to go about it.”

Another analyst, Jon Langenfeld of Robert W. Baird & Co., wrote in a research note that the TARP fund application could backfire.

“Despite the fact that the union pension is not relevant to YRC’s near-term viability, shippers have already misinterpreted this move as an act of desperation, which could make share recovery more challenging,” wrote Langenfeld, who kept a “neutral” rating on the YRC stock.

YRC’s survival is dependent on “how much rope the banks want to give (YRC),” Ross told AP.

Stifel Nicolaus is maintaining a “hold” rating on YRC stock, with a “strong negative bias.”

In a recent note to clients, Ross said YRC continues to lose business to competitors and that YRC’s volumes in April were down 35 to 40 percent compared with a a year earlier.

YRC’s stock price has been hammered, closing at $3.18 on Tuesday. In mid-July, the stock price stood at $22.52.

On Friday, Zollars said that “volumes that were temporarily diverted have begun to return,” but added, “it has not been at the level and speed that we initially expected.”

YRC’s statement issued Tuesday said the firm is “making significant progress in strengthening our competitive and financial position. With our unrivaled networks, we are well-positioned to continue providing service that is simply reliable. On the financial side of our business, we are confident that we are taking the right steps by actively managing cash flow and engaging in constructive discussions with our lenders so that (we) can continue to meet our obligations and serve our customers. The most recent example is our bank amendment announced on Friday.”

No comments: