YRC Worldwide is further integrating its national and regional less-than-truckload (LTL) operations, at least on paper. The company will no longer report separate financial results for its national and regional LTL operations, but offer one consolidated report, as it did Monday for the 2020 first quarter. That’s a recognition the company has four brands, but one network.
It’s also a sign the reorganization YRC Worldwide launched last year is creating a very new operating model for the company, which slipped back into losses in 2019 after a decade-long struggle to recover from a near-brush with bankruptcy during the 2007-09 recession. That new model’s success is critical to shippers that depend on the company’s extensive LTL capacity.
It’s also critical to a company that had to go back to its lenders for more financial flexibility as the economy tipped into recession. YRC Worldwide indicated it may have to seek an extension of that flexibility when an adjusted loan agreement expires in the first quarter of 2021.
Since it began its back-office consolidation last year, the trucking operator has been focused on bringing its four operating companies together as “one company, one network, and one management team,” CFO Jamie Pierson said Monday. “We will leverage the power of our national and regional networks to provide faster and more reliable service to our customers.”
In an earnings call, Pierson told Wall Street analysts the COVID-19 pandemic is likely to accelerate YRC Worldwide’s transformation into a more streamlined LTL carrier with a denser freight network that better matches shippers with long-haul and regional services. With many customers closed, “we’re using this low level of activity to accelerate that transformation.”
Bottomline returns to black
YRC Worldwide did post a net profit of $4.6 million for the first quarter of 2020, an improvement over a $49.1 million net loss in the same period a year ago and $15.3 million net loss in the fourth quarter of 2019. For the full year of 2019, YRC Worldwide posted a net loss of $104 million on $4.87 billion in revenue, spurring efforts to transform its business.
YRC Worldwide insists the network realignment will help the Overland Park, Kansas-based transportation company deliver better service to its shipper customers, but it will also reduce operating costs by allowing the company to merge national and regional terminals in the same regions while consolidating its management and sales structure.
In total, YRC Worldwide hauled 18.8 million LTL shipments in 2019, and maintained a combined fleet of 14,100 tractors and 43,700 trailers, with 29,000 employees. As of Dec. 31, the YRC Worldwide companies operated 351 terminals with 20,300 LTL doors, as well as five warehouses managed by logistics subsidiary HNRY, launched in December 2018.
The reorganization is as close to a merger as it can be without an actual merger. Regional LTL carriers New Penn, Holland, and Reddaway continue to exist as separate brands, operating alongside national LTL company YRC Freight — which was formed by the merger of former YRC Worldwide subsidiaries Yellow Transportation and Roadway LTL networks in 2008.
An actual merger of the brands isn’t envisioned. For one, the company believes the brands contribute heavily to YRC Worldwide’s value to customers and shareholders. Beyond that, each carrier is organized by the Teamsters union, which would complicate merging four separate workforces. Additionally, the reorganization delivers some benefits of a merger without that hassle.
“The creation of one is the foundation of our future where we will leverage the power of our national and regional networks to provide faster and more reliable service to our customers,” Pierson said. “Our results reflect that our transformation strategy was really gaining traction and continues to do so,” YRC Worldwide CEO Darren Hawkins said during the earnings call.
Developing a new plan
The transformation strategy is the cornerstone of Hawkins’ tenure as CEO, a position he took in 2017. Hawkins succeeded James Welch, who saved YRC Worldwide from the abyss after taking the wheel at the company in 2011, eventually bringing it back to profitability in 2015 after eight years of losses totaling $3.2 billion. But profit margins remained thin.
Hawkins and his corporate team developed a five-step strategic plan, starting with securing a new five-year Teamsters agreement, a new financing plan, and then network optimization. The first two goals were achieved last year and the third is ongoing. YRC Worldwide cut 25 terminals from its network last year and now operates 343 facilities, 41 fewer than a year ago.
The next two steps in the strategy are customer growth initiatives to build volume and additional capital investment, both of which are now complicated by the COVID-19 pandemic, which pulled YRC Worldwide LTL shipments per day down 6.4 percent year over year in the first quarter. In March and April, LTL volume dropped 11.3 and 23.9 percent, respectively, Pierson said.
“The degradation in volumes appears to have stabilized as we moved into the last couple of weeks of April and the first week of May, down approximately 20 percent plus or minus,” he said. That’s similar to the 20-percentile-range volume decline reported by other publicly owned LTL carriers and third-party freight brokers handling LTL shipments in recent weeks.
Pierson said YRC Worldwide has successfully shored up its liquidity and cash reserves, increasing total liquidity by almost $40 million to $118 million at the end of the quarter. The company’s lenders last month waived some liquidity requirements and interest payments, giving YRC Worldwide more flexibility as it motors through the COVID-19 pandemic and recession.
The company has laid off and furloughed employees, cut executive compensation, and postponed discretionary spending on equipment to reduce operating costs. It has also asked Teamsters union pension and benefit plans for a “grace period” of at least a month to make its contributions, the International Brotherhood of Teamsters said.
That points to just how tight cash has become. Teamsters union wage and benefit concessions were instrumental in getting YRC Worldwide through the 2007-09 recession and the lean early years of the economic recovery. Last year’s contract didn’t restore all those recessions, but it did give most YRC Worldwide drivers and dockworkers an 18 percent raise over five years.
In its earnings statement, YRC Worldwide said it will likely need more help from its creditors when the adjusted lending agreement it secured in April expires at the end of the first quarter of 2021 and earlier, more restrictive covenant terms snap back in place. “We will need to either seek an extension of the waiver period or otherwise modify the covenant,” the company said.
Eyes on the other side
The economic downturn in the second quarter will be as steep as a runaway truck ramp for YRC Worldwide and most trucking companies, although the carrier’s customer base includes many shippers that provide essential goods and services, and therefore are still in business. YRC Worldwide didn’t say what percentage of its customer base has been closed by the pandemic.
Hawkins is banking on the reorganization to pull YRC Worldwide through the chaos.
“I want to assure you that while we have been significantly challenged by this crisis, we will continue the operational optimization initiatives to drive asset utilization and equipment,” he said. “Combined with network mile reductions through density aggregation, this should lead us to be a more profitable company on the other side.”