Hundreds of millions of dollars have been wiped from YRC Worldwide’s books as a severe decline in shipping digs the financial hole for the country’s largest less-than-truckload carrier that much deeper. The question for shippers, investors and the company’s workers is whether it’s too deep for the company to climb out.
YRC Worldwide lost $309 million in the three months ending June 30 as the company took a sharp blow to its attempts to rebuild its balance sheet and its place in the domestic trucking market.
The company lost ground on both fronts, leaving it with what some investment analysts bluntly said is as little as three months of cash if it continues to bleed freight business at a rate even ahead of the troubled U.S. economy. That raised the volume on suggestions the company, which had $8.9 billion in sales last year, may file for bankruptcy protection by the fall.
David G. Ross of Stifel Nicolaus wrote that even with approval from unionized workers for a new cost-cutting labor contract, without “big” asset sales, “we estimate the company violates its minimum liquidity covenant in November.”
Without a series of one-time charges related to its debt and the reorganization and integration of its former long-haul LTL units, Yellow Transportation and Roadway, YRC Worldwide said it lost $255 million in the quarter, compared with a $35.8 million profit a year earlier.
Despite a dismal freight outlook, William D. Zollars, YRC’s chairman, president and CEO, insists his company is on track with a “comprehensive plan to realize efficiencies from the YRC integration, restore financial strength and position our operating companies for future success.”
At the same time, he braced shippers and investors for more bad news.
“We have seen signs of encouragement in the economy, including stabilization in our absolute volumes, though we think it is too early to confirm that this is the bottom of the recession,” Zollars said in a July 30 conference call with investment analysts. “We don’t expect much growth from the economy for the remainder of 2009, and for much of 2010.”
That leaves customers, investors, lenders and competitors wondering how much more of a beating YRC Worldwide can take. The second-quarter loss gives YRC more than $2.1 billion in cumulative losses since 2007.
But the shipping volume looked even worse than the financial figures because it suggests the carrier’s customer base is eroding.
Shipping volume at the national LTL carrier fell 37.1 percent from 2008’s second quarter to 3,600 shipments, or 57 shipments per day. The carrier’s tonnage dropped 39.9 percent to 2,106 tons, or 33.16 tons per day.
At YRC Regional Transportation, which includes Holland, Reddaway and New Penn, total second-quarter shipments dropped 23.8 percent to 2,478, while shipments per day fell 22 percent to 39.7.
And although YRC Worldwide cut $700 million, or 30 percent, from its operating expenses — including a 24 percent cut in salaries, wages and benefits — its revenue dropped even more, falling 45 percent to $1.3 billion.
Revenue at the national LTL unit declined 48.4 percent to $873.7 million and losses neared $240 million. YRC Regional Transportation saw a 36.7 percent decline in revenue to $337.9 million and a $48.4 million loss.
Shippers aside, the company’s survival now depends on the dedication of its Teamsters employees and the patience of its lenders, as well as on cash from the sale of additional service centers and, not least, its ability to deliver on its promises in the last half of 2009.
The company is betting its future on new wage and benefits concessions from its Teamsters employees — its second round of concessions this year — that would save it more than $800 million through December 2010. YRC Worldwide believes that agreement, which would cut Teamsters wages 15 percent and stop pension contributions for 18 months, will help the cash-strapped operator survive until the economy picks up. Ballots from rank-and-file employees were due Aug. 6.
YRC Worldwide secured additional breathing space from its lenders, reaching agreements in late July that came with earnings covenants for the third and fourth quarters that will help its national and regional LTL carrier subsidiaries keep rolling.
“Our focus remains on liquidity,” said Tim Wicks, YRC Worldwide executive vice president and CFO. As of June 30, the company had $165 million in cash on hand and another $53 million available under its lending agreements, Wicks said.
The company is working with financial advisers Tenex Capital Management, Alvarez & Marsal and Rothschild on a strategy for debt management and liquidity.
Zollars said the worst of a painful reorganization and the integration of Yellow and Roadway into one YRC branded company is over. “We feel very good about what we accomplished in a short time and are now beginning to reap the efficiencies of the integration,” he said. “As we continue the phased reduction of our service centers, we will continue to show improvement. Savings will become apparent as we move through the third quarter.”
YRC Worldwide is closing, selling and, in some cases, leasing back property to amass cash, lower debt and align its network with lower freight volume. It has closed 160 service centers this year, bringing the total number closed to 390. “We expect to remove another 30 centers by the end of the third quarter with no negative impact on our service,” Wicks said. “We now expect excess property sales of $100 million for the year, with $53 million through June.”
However, analysts remain skeptical Zollars and his company can avoid a runaway truck ramp leading straight to Chapter 7 liquidation or Chapter 11 reorganization.
“It’s not just the economy, it’s the company,” Stifel Nicolaus’s Ross said. “YRC is performing worse by far than any of its competitors.”
YRC Worldwide’s year-over-year declines in tonnage and volume were the worst in a bad quarter for the LTL industry.
Tonnage per day dropped 7 percent at Con-way Freight, 14.6 percent at Old Dominion Freight Line and 17 percent at ABF Freight System. Daily shipments handled by FedEx Freight declined 17 percent. UPS Freight kept its decline in daily shipments to 1.9 percent.
Revenue per hundredweight, a measure of yield and pricing, fell 14.2 percent year-over-year at YRC National, including fuel surcharges and excluding $12 million in readjusted rates not counted as quarterly revenue. At YRC Regional, revenue per hundredweight dropped 11.9 percent, including fuel surcharges.
Zollars was the company’s chief executive optimist on the conference call, insisting the company is hanging onto customers and bringing back shippers that had left.
“We continue to win new business, and customers have returned shipments to our networks, though it has not happened as quickly or at the levels we were initially expecting,” he said. While admitting some customer defections, he said, “Our largest customers remain loyal. We’ve remained a primary carrier for both Home Depot and Wal-Mart, and we really appreciate their support.”
He said LTL competitors were trying to lure smaller shippers away by “buying market share at any price and attempting to make our situation look worse than it is.”
Although the market remains “very competitive,” he said YRC Worldwide won’t need to discount rates more deeply to attract business or retain it. “I think we’re competitive right now from a price standpoint. That’s not the issue in bringing on new customers,” Zollars said. “It’s more the financial overhang and ensuring we have a good service product.
“We don’t see the need to lower price significantly to retain volume,” he said.
Contact William B. Cassidy at firstname.lastname@example.org.