YRCW finishes $500 million restructuring plan, reportedly names former Yellow head Welch CEO
July 22, 2011
There is new optimism, fresh capital and a familiar face at the wheel of financially ailing LTL giant YRC Worldwide (YRCW) as it hopes to end a five-year slump in which it has lost in excess of $2.6 billion, as it tries to shed its infamous title of biggest money-loser in the history of trucking.
James L. Welch, head of Dallas-based Dynamex and former president of YRCW predecessor company Yellow Transportation, is the company’s new CEO, according to industry sources (a formal announcement is expected in the coming days).
Welch, 55, succeeds William D. Zollars, YRC’s chairman, president, and CEO since 1999. Zollars, who engineered the purchases of Roadway Corp and USF Corp that saddled YRCW with more than $1 billion in debt, is retiring.
Welch began his career in 1978 as a sales rep for Yellow Transportation, now known as YRC National. In 2000, Welch was named Yellow’s president and CEO, a position he held until 2007.
Welch’s return coincides with completion of a new $500 million restructuring that includes a new $400 million lending agreement to help YRCW, which is still losing money, albeit at a much lesser rate.
YRCW reported a net loss of $39 million on $1.257 billion revenue, compared to a net loss of $10 million on $1.119 billion revenue in the second quarter of 2010, which included an $83 million after-tax benefit.
“The headline is we’re making money on an operating basis,” Zollars said on a conference call with analysts. “We can focus on our future success rather than survival.”
Regarding pricing, Zollars said it’s a constant balance between volume and pricing. “We’re in recovery mode as an industry on the yield side,” he said. “We’ve had a lot of success recently with some of customers who left us and having them come back with us at higher price levels. I think that will continue. The industry has recovered some sanity on the pricing side.”
YRCW’s consolidated operating loss was $2 million, which included $17 million of restructuring professional fees. By comparison, it suffered a consolidated operating income of $48 million, which included an $83 million benefit for a fair value adjustment to an equity-based award and $9 million of restructuring professional fees, in the year-ago quarter.
That year-over-year improvement buoyed YRCW’s new leadership team as the company is hoping to cash in on the slowly rebounding economic recovery and stronger freight demand and pricing. YRC National has a 9.6 percent market share and its regional units hold a 4.6 percent market share in the $31 billion LTL sector. YRCW, along with rivals UPS Freight, ABF Freight System and Con-way, recently announced a 6.9 percent general rate increase, although that hike is subject to individual shipper negotiations.
“We are pleased with the continued year-over-year growth in business volumes and improvements in earnings as we achieved consolidated adjusted operating income for the second quarter,” stated Bill Trubeck, YRCW’s interim executive vice president and CFO of YRC Worldwide. “In particular, YRC National’s adjusted operating income represents an important milestone for this business.”
YRCW emphasized second quarter 2011 improvements over its year-ago second quarter:
-YRC National Transportation adjusted operating ratio improved by 350 basis points to 99.2, shipments per day up 7.1 percent, tons per day up 6.2 percent, revenue per shipment up 5 percent and revenue per hundredweight up 6 percent; and
-YRC Regional Transportation adjusted operating ratio improved by 180 basis points to 95.9, tons per day up 8.1 percent, revenue per shipment up 9.9 percent, and revenue per hundredweight up 6.5 percent.
In its 8-K filing with the Securities and Exchange Commission, YRCW is forecasting $150 million of positive earnings before interest and debt in the second half, which would be a significant improvement over the past five years’ second-half performances.
Zollars said YRCW is “well-positioned for long-term success.” He cited improved pricing discipline in the LTL sector, greater freight demand and generally improving economic conditions for such optimism. Zollars said contract renewals were coming with 4 percent rate increases “on a blended basis.”
“We have been picking up market share the last couple of quarters, and we would expect that to continue,” said Zollars, who said he expects more business in the wake of completion of YRC’s long-awaited restructuring. “It’s hard to quantify that but we expect business to return as momentum accelerates with the finishing of the restructuring.”
YRCW, which has shrunk from a $10 billion to a $4.6 billion company in the past five years, said it handle as much as a 20 percent influx of freight through its network of 300-plus networks in its regional and long-haul business. YRCW still has more than $1 billion in long-term debt. YRCW operates 16,400 tractors and 54,000 trailers at its five major operating companies.
“We could handle 20 percent volume through our operating companies,” Zollars said. “We could handle significant increase in volumes.”
Zollars admitted the average age of its fleet is 5.5 years, which he admitted is a bit older than most rivals. YRC has slashed capital expenditures the past four years as it fought for survival. Its city pickup-and-delivery fleet is about 10 years old, Zollars said.
“The good news is we are going to be able to reinvest in the business going forward, but we’re not going to give out precise numbers,” Zollars said. “We have a lot of upside on the fleet. We can always rent trucks so that’s not going to restrict us going forward.”
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 restructuring included a radical 1-9 reverse stock split which means a new set of shareholders will own the company, with former shareholders’ value sharply diluted. Existing stockholders will own just 2.5 percent of the company under the new deal. At press time, YRCW stock was going for just over $1 a share on the final day before the restructuring. A revamped board of directors is in place, including lenders and employees representing the 25,000 Teamsters still employed at YRCW.
YRCW officials emphasized that its restructuring includes net cash proceeds from the $100 million of new notes and the new $400 million asset-backed loan will enhance its liquidity and provide a “runway for the continued growth in revenues and earnings.”
“With the operating momentum we achieved during the second quarter, which continued to-date into July, we expect to achieve year-over-year revenue growth and adjusted operating income for the remainder of 2011,” Trubeck said.
In addition, the company has the following updated expectations for full year 2011:
-Gross capital expenditures up to $125 million; and
-Excess property sales in the range of $30 million to $40 million
Welch returns to YRCW after three-year stint at Dynamex, an expedited carrier. Dynamex was acquired in February by Canadian transport firm Transforce Inc. for $248 million, Welch was named the new company’s CEO. After leaving Yellow and before joining Dynamex, Welch was interim CEO of auto hauler JHT Holdings Inc. and an independent consultant.
The company recently secured a $400 million asset-back loan agreement from a consortium of banks led by JPMorgan Chase. The $4.3 billion LTL carrier lost $102 million in the first quarter now has lost $141 million in the first half of this year.
The restructure closing will mark the conclusion of service for the company’s current board of directors and the assignments for chief restructuring officer John Lamar and interim CFO Trubeck.
“I wish to express my gratitude to John Lamar and Bill Trubeck for their leadership and expertise during this critical period,” Zollars said in a statement.
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