Tuesday, June 16, 2009

YRC accelerates closing of facilities as part of integrating Yellow, Roadway

YRC Worldwide Inc. plans to close more facilities this month as it speeds up cost-cutting measures.

The Overland Park-based trucking giant said Tuesday that it expects to pare its Yellow and Roadway networks, integrated earlier this year to become YRC, to about 400 facilities by the end of the month, rather than by the end of the year as previously planned.

“We have been able to accelerate those plans,” the company said in a statement to the Kansas City Business Journal.

The move “will result in a meaningful reduction in fixed and variable costs,” the statement said.

YRC had 521 facilities, 37,000 employees and 16,700 trucks at the end of 2008. By the end of 2009, it had expected to have 400 facilities, 34,000 employees and 14,000 trucks. Those plans already marked a reduction from a target announced in March for 430 facilities by year end.

The move will let YRC more quickly realize the expected $250 million in annual savings, Longbow Research analyst Lee Klaskow said in a Tuesday note.

YRC also said it will close “a small number of facilities” for which it had arranged sale-leaseback deals, but it didn’t elaborate.

“We will provide information on which facilities when the network decisions are finalized,” the statement said.

Klaskow said he heard from industry contacts that YRC was trying to back out of some sale-leaseback agreements with Estes Express Lines Inc. because YRC didn’t have sufficient density in the markets. YRC would have to pay six months in lease payments as penalty.

“Despite this development, we believe Estes and YRC Worldwide will continue to enter into sale leasebacks with one another in 2009 as (YRC) looks to raise cash and Estes looks to improve its network,” Klaskow wrote.

YRC has been selling property, laying off workers and trading wage cuts for company ownership in an effort to combat losses and weak freight volumes. It lost $257.4 million in the first quarter.

Klaskow said YRC faces difficult circumstances — “the freight environment continues to deteriorate despite management’s best efforts to right-size its network” — but management, lenders and other constituents seem to be working together.

“We continue to believe YRC Worldwide has the ability to avoid bankruptcy should the economy begin to show signs of real growth in early 2010 or if more private (less-than-truckload) carriers exit the market,” Klaskow said.

He predicted that YRC could have a chance at roughly $1.1 billion in revenues, or 3 percent market share, from private regional competitors that are struggling.

“If (YRC) were able to win some of this share, we believe it could vastly improve its operation ratio and prove our estimates too pessimistic, given the operational leverage of its network,” Klaskow wrote.

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