Sunday, August 02, 2009

Is November the End for YRC Worldwide?

YRC Worldwide, the nation's largest trucking company by revenue, continues to post huge losses on declining revenue. The Overland Park, Kan.-based LTL carrier posted a $309 million loss in the second quarter, compared with $35.8 million earnings in the year-ago period, on a 45 percent decline in revenue to $1.33 billion. YRC CEO and Chairman Bill Zollars says he continues to have "guarded optimism" about the future of his company.

YRC Worldwide continues to bleed red ink. Its second-quarter loss of $309 million means the company has lost in excess of $2.1 billion in the last 10 operating quarters.

How long can this continue?

YRC Chairman and CEO Bill Zollars says in a press release announcing the results that he has "guarded optimism" and that his LTL company "appears to have stabilized." Yet he candidly admitted there is no growth prospects for either this year or 2010.

Which begs the question: if not now, when?

The second and third quarters are usually the best times for trucking companies. Most of YRC's rivals either have swung back to profitability (Con-way, for instance) or have narrowed their losses (Arkansas Best Corp.'s ABF Freight System unit)s. YRC has done either.

Zollars insisted to the Wall Street Journal that his company has retained "the vast majority" of its customer base. Yet, his own revenue figures would seem to belie that fact. Revenue fell 45 percent in the second quarter to $1.33 billion. That would mean on an annual basis that YRC, which was about a $9.6 billion company just two years ago, is now on a 12-month run rate to post just over $5 billion in sales.

Perhaps Zollars knows something we don't know. Perhaps at $5 billion YRC will be more profitable than it was at $9.6 billion.

But I know this: the market place is alive with rumors. Competitors are viciously selling against YRC to customers, warning of a possible fourth-quarter shutdown of what is still the nation's largest trucking company.

Respected trucking analyst David Ross of Baltimore-based Stifel Nicolaus, who has long had the best read on YRC's rather murky financial projections, is warning in a note to investors that unless YRC's terminal and other asset sales "come through big," the company may run aground of its minimum liquidity covenants in November. That basically means YRC runs out of cash.

YRC's lenders have been more than patient. Even now, they have allowed YRC to waive the minimum $100 million liquidity covenant for August and will allow YRC to keep all (up to $50 million) of its proceeds from ongoing asset sales. This will allow further "wiggle room" as YRC decides if it can sell more assets (its Holland and New Penn regional LTL units might fetch a suitor but industry overcapacity means any sales price will be depressed).

The company's 33,000 active Teamsters currently are voting on another wage concession and pension freeze package. Together, this might save the company as much as $900 million over the next 12 months.

Look for the Teamsters to approve the wage cut, but not by the overwhelming 82 percent majority that the early 10 percent wage cut passed. This will be closer, but will still pass, according to sources within the union. Results will be announced around Aug. 6. But even with those concessions, YRC is far from being "out of the woods" as its financial noose continues to tighten.

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