YRC reports second straight quarter of operating profit, ekes out slight $3 million net profit
November 02, 2012 - LM Editorial
Financially ailing YRC Worldwide, which has lost in excess of $2.6 billion in the last five years, is a lot less financially ailing today.
Posting sharply improved third quarter operating results in the 15th month under new CEO James L. Welch, YRC Worldwide reported Friday an operating profit of $27.3 million on top of a $15.5 million operating profit in the second quarter. It’s the first time in four years that YRC, which is the second-largest LTL carrier behind FedEx Freight, has posted two straight quarters of operating profit.
“While I’m encouraged by improving results, I am far from satisfied,” said Welch, a 29-year veteran of previous YRC companies who returned to the company last December to replace the departed CEO, Bill Zollars.
YRC managed to eke out a $3 million net profit in the quarter on $1.24 billion revenue, but that profit because of a $6.2 million income tax benefit. But that $3 million net gain was far better than its $122.3 million net loss in the year-ago third quarter.
“We’re confident we have stripped away many of the distractions we had when we took over,”
Welch added on a conference call with investors and analysts, the first time in a couple of years that YRC officials have talked in detail about their quarterly results.
The new YRC management team head by Welch and YRC Freight President James L. Rogers have reason to be somewhat pleased, if not proud of the turnaround they are engineering at both long-haul YRC Freight and its three regional subsidiaries—Holland, New Penn and Reddaway—which Welch labeled “excellent companies.”
Those three regional companies posted a combined operating ratio of 93.5. Except for industry profit leader Old Dominion Freight Line (85.1), that is the best OR posted by any publicly held regional LTL carrier during the less-than-robust third quarter ended Sept. 30. For the first nine months, YRC regional posted a combined 95.1 OR.
The situation at long-haul national carrier YRC Freight is improving, but not as financially rewarding. It posted an OR of 99.7 in the third quarter to give it a 102.4 OR for the first nine months.
“While I’m encouraged by improving results, I am far from satisfied,” Welch said. “We inherited a poorly and partially integrated company. I can absolutely assure you we are changing things.”
YRC has struggled since buying long-haul rival Roadway Express for $1.1 billion in 2003 and then buying regional carrier USF Corp. for $1.2 billion two years later.
Those acquisitions saddled YRC with billions in debt. When the economic downturn hit in 2008 and freight volumes fell precipitously, YRC was left with too much excess capacity and fixed costs. The losses mounted.
Even now, YRC has $1.38 billion in long-term debt, which analysts say is a lot for a $5 billion company. But YRC’s new management team has brought focus to the company’s operations, which are improving.
YRC’s consolidated operating revenue for the third quarter of 2012 was $1.237 billion, 3.1% lower than 2011. Consolidated operating income increased $53.4 million to $27.3 million, which included a $2.3 million gain on asset disposals. , By comparison, YRC had consolidated operating revenue of $1.276 billion for the third quarter of 2011 and a consolidated operating loss of $26.1 million, which included a $10.8 million gain on asset disposals.
Third-quarter earnings before interest, taxes, debt and amortization (EBITA) was
$78.8 million, a $24.1 million improvement over the $54.7 million adjusted EBITDA during year-ago quarter.
“Despite the current economic headwinds, we were able to increase profitability through a combination of pricing discipline, customer mix management and an unrelenting focus in the areas of safety, costs, and operational fundamentals,” Welch said.
Since a new board of directors and management team were put into place in the third quarter of 2011, YRC’s adjusted EBITDA has increased over each comparable prior year’s quarter. For the first time in four years, excluding second quarter of 2010, which included an $83 million non-cash reduction in equity-based compensation expense, YRC reported positive operating income in each of its subsidiaries.
“I am encouraged with the steady progress we’ve made throughout the year and remain committed to the execution of our strategy,” Welch said in a statement.
Welch said YRC is “solely focused on the North American LTL market” and is “working diligently to remove any distractions” that might keep it from dedicating 100 percent of its time and energy to improving operating results and service levels at YRC Freight and its regional LTL units.
“We continue to produce results slightly ahead of our forecast and remain intensely focused on execution at each of our operating companies,” he said.
Some highlights from YRC’s third-quarter results in its regional unit, compared with third quarter of 2011:
-Operating revenues up 3.1% to $417.3 million;
-Tonnage per day up 0.3% and shipments per day down 0.4%;
-Revenue per hundredweight up 2.9% and revenue per shipment up 3.6%
at YRC Freight, its long-haul unit, compared with third quarter of 2011;
-operating revenues down 2.6% to $819.5 million;
-tonnage per day down 4.6% and shipments per day down 4.5%; and
-Revenue per hundredweight up 3.4% and revenue per shipment up 3.2%.
YRC Freight recorded positive operating income for the first time in four years, excluding second quarter of 2010, which included a $64 million non-cash reduction to its equity-based compensation expense. Welch said that improvement in profitability was a result of improvements in its customer mix and an emphasis on yield and productivity improvements.
“I am encouraged, but not satisfied, with the improvement in their operating ratio,” Welch said. “While I am confident they will continue to improve on their performance, there is still much to do at YRC Freight in order to reclaim their position as an industry-leading LTL carrier.”
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