LTL news: YRCW sees third quarter net loss but gains in operating revenue
November 04, 2011
Less-than-truckload (LTL) transportation services provider YRC Worldwide (YRCW) today reported a third quarter net loss of $177.9 million, which was more than double the $61.7 million net loss from a year ago.
Quarterly consolidated operating revenue was $1.276 billion, which was up 12.3 percent annually, and its consolidated operating loss was $24 million, including $12 million in restructuring professional fees and a $15 million non-cash charge for union employee equity awards.
This was the company’s first earnings call since it completed its financial restructuring in July. Before the restructuring, YRCW had 48 million outstanding shares. After the restructuring, it has 1.9 billion shares, meaning former shareholders will own just 2.5 percent of YRC. The other 97.5 percent is now owned by new shareholders comprised of lenders, bondholders, and labor union members. When the restructuring was first announced in July, YRCW officials said it would enhance the company’s liquidity and provide a “runway for the continued growth in revenues and earnings.” YRCW has lost nearly $3 billion over the last four years
And it also marked the first earnings call with new CEO James Welch, YRC operating unit president Jeff Rogers, and CFO Janie Pierson in their respective new positions.
“While we now have a restructured balance sheet…we must sharpen our focus on the operations and the delivery of consistently reliable service to all of our customers,” said Welch on a conference call. “I am very pleased with the service given by Holland, Reddaway, and New Penn, but we have to push further improvements at YRC. We are making good progress, but it will take time. As we improve service at YRC, I believe we will restore confidence in field operations and sales, which should lead to higher yields and more volume.”
Welch added that within his first 100 days as CEO, he did not waste any time in making changes in how YRCW manages its holding and operating companies going forward. The holding company, he said, “was much too involved” in the day-to-day business of the operating companies, and the way the company was previously structured created bottlenecks in strategy, decision-making, and execution, along with creating inefficiencies.
To that effect, YRCW recently eliminated four C-level positions at the holding company and has largely put power and responsibility back in the hands of the operating companies.
Tons per day at YRC National Transportation were up 4.2 percent year-over-year, and revenue per hundredweight and per shipment were up 7.5 percent and 6.2 percent, respectively. YRC National operating revenues rose 11.5 percent to $841.6 million.
At YRC Regional, tons per day were up 5.6 percent and revenue per hundredweight and per shipment were up 8.2 percent and 10.4 percent, respectively. YRC Regional operating revenues were up 14.3 percent to $404.8 million.
For both National and Regional, YRCW said changes weight per shipment, length per haul, and customer mix affected metrics for both groups in the quarter.
“The general economic recovery continues at a moderate rate at best, which is below the recovery rates of past recessions,” said Welch. “Market volatility and unemployment levels create uncertainty, but the dynamics within our industry are encouraging compared to the last several years as price discipline continues as demonstrated by the August rate increases. Industry capacity appears to be hanging in there, somewhat due to the industry growth rates but it probably has as much to do with network rationalization and a limited availability of qualified drivers to hire.”
He added that YRCW’s business performance continues to improve year-over-year, especially when considering the incremental pension expenses of $17 million added to the company’s cost base in June, when YRCW re-entered the multi-employer pension funds and its union employees began to accrue additional pension services and benefits.
Welch said if not for a much worse than expected July, third quarter results would have been better, adding that September was the best month of the quarter, with momentum beginning in August. Daily volumes for October also showed growth on an annual basis.
In terms of growing its business for the future, Welch said that YRCW continues to improve service and rationalize its network to be more efficient rather than grow and lead by price. He added that improving service and regaining the confidence of its customers and improving the operations will not occur overnight, but as it gradually plays out, YRCW will be able to seek pricing gains.
“You make money in this business with price and volume,” said Rogers. “By providing a good, consistent service, it allows you to make those decisions a lot better. If you don’t have the service, then you don’t get to choose what you get. As we improve the service, we will get to make those choices and bring on the right type of volume at the right price, which is key. We first need to focus on consistent service.”
The new team under Welch is now able to put more focus on the business side of things, as opposed to financial and banking-related changes, according to Satish Jindel, president of SJ Consulting.
“A focus on having a management team in place that is driven and selected with the objective to help the rank and file—whether they are drivers or dockworkers or salespeople—and to go to customers and show them the level of determination they have to making the company a better run organization and get that extra shipment or two from customers and regain what they had, given its tremendous losses in the $3 billion to $4 billion range over the last several years” will go a long way, Jindel recently told LM.
To regain even 5 or ten percent of shipments it lost during that period could make a big difference, he said, and a focus on pricing and handling only profitable freight are well-suited for a carrier because of the market conditions, concerning capacity and supply balances that are in place. This sets the table for YRCW to have a profitable fourth quarter and not have to rely on outside sources for cash infusions to stay afloat.
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