A year ago, plenty of people were willing to bet James Welch wouldn’t be where he is today: in the CEO’s office at YRC Worldwide. It’s time to pay up.
On July 25, Welch began his second year as CEO of the $4.9 billion company he put on a turnaround course. With support from YRC’s lenders, management and board and Teamsters employees, Welch proved YRC has more lives than a cat.
The survival of YRC Worldwide, the largest U.S. less-than-truckload operator, when many expected it to fail will shape the trucking landscape for shippers for years to come. YRC is still far from healthy, however. The company has lost more than $3 billion since 2006, including a $48.8 million net loss in the first quarter of 2012. YRC has approximately $1.4 billion in debt, and heavy future pension obligations, and multi-employer pension reform isn’t high on Congress’s short-term agenda.
YRC’s second quarter results are likely to indicate it still has many miles to go on the road to recovery, a road that requires grinding attention to detail, Welch said.
Much of that grinding is being done at the company’s long-haul, nationwide LTL carrier, YRC Freight, the successor to Yellow Transportation and Roadway.
“YRC Freight is still the company that has to do better and will do better,” Welch said in a July 23 interview. “We have to continue to attack the business mix. We’re still handling too much freight that perhaps we shouldn’t handle or perhaps we aren’t being paid enough to handle. We’re working everyday to improve our yield.”
That could mean further “tweaking” of YRC Freight’s terminal network, which recently completed a major change of operations to speed freight with less handling.
He said the results of those changes are beginning to show up in key metrics.
“The number of transfers is going down. The number of line-haul miles is going down. Load average has been positive,” Welch said. “Most important, we improved service standards on 24,000 origin and destination pairs. That was huge. That four-day lane is now a three-day lane, and the three-day lane, a two-day lane.
“We’ll have a better mix of business and more business as time goes on here,” Welch said.
When he returned to YRC Worldwide last year after a five-year absence, Welch made a series of decisions that steered the tottering company onto a different route. “It’s been a year of rapid change and getting back to the basics,” Welch said.
His list of Year One accomplishments is long and starts with taking authority from YRC Worldwide and pushing it “back to the operating companies,” that is, the renamed YRC Freight and regional carriers New Penn Motor Express, Holland and Reddaway. YRC Worldwide is now a more traditional holding company, he said.
Welch installed a new management team at YRC Freight led by former Holland President Jeff Rogers. YRC sold truckload subsidiary Glen Moore and the stake in one of its two joint ventures in China. “The company had really drifted to logistics, transportation management systems, China,” he said. “We came in and said, Let’s have a laser-like focus on LTL. The fact is we’re in the freight business.”
In April, the company signed a new long-term financing agreement based on a revised forecast with its lending group, which owns 72.5 percent of the company.
Getting back to basics meant line-item reviews of all operations at each of the operating companies, breaking down profit and loss for each segment of each business, Welch said. “We’re trying to figure out where we’re doing better and where we need to change, what we need to do to get the business we want.”
YRC Freight took a step in that direction in March when it implemented a new costing model that will help the carrier better measure costs and price freight. “We’re encouraged by the results we’ve seen so far,” Welch said. “It’s pointing YRC Freight in a better direction, one that’s going to make a difference over time.”
YRC Freight hopes to follow the YRC Regional carrier group back to profitability. The regional group had an $11.4 million operating profit in the first quarter and increased revenue 9.8 percent from a year earlier to $402 million. Holland, the largest regional carrier, is hiring drivers to meet rising LTL freight demand in the Midwest.
“I really like the progress our regional group has made,” Welch said.
Building on that progress to achieve an overall net profit for YRC Worldwide is still a long-term target for the company and its banking creditors and investors. YRC must repay debt and pay interest. The company must cover about $113 million in pension obligations and $40.8 million in operating leases this year alone, according to documents filed with the U.S. Securities and Exchange Commission. Then there are looming capital expenditures for much needed new trucks or equipment.
“We have to continue to improve our financial performance in a consistent way that shows our competitors and lenders that we’re here to stay,” Welch said. “Generating positive operating income is our mission. I’ve no doubt we’ll get there.”