December 4, 2008: YRC Worldwide Inc., the largest U.S. trucker, will seek out more cost reductions after reaching a tentative agreement with the Teamsters union for a 10 percent wage cut, Chief Executive Officer Bill Zollars said.
YRC under President-elect Barack Obama’s administration will push to let the multiemployer pension plan it participates in stop supporting retirees from companies that have gone out of business, Zollars said in an interview today. The company also will look for other ways to trim employee expenses, he said.
“There are going to continue to be efforts to create as much cushion for this economic downturn as possible,” Zollars said. “We’re still working on some plans to share the pain across the entire company.”
YRC is scaling back after posting losses in three of the past four quarters as the U.S. recession extends a freight slump dating to 2006. The Overland Park, Kansas-based company said yesterday that the accord with the Teamsters, which faces a vote by about 40,000 union members, would help save as much as $250 million a year.
Credit Rating Cut
Standard & Poor’s today lowered its corporate credit rating for YRC by five grades to CC, or 10 steps below investment status, from B. S&P cited the company’s $100 million tender offer for some of its notes, calling it a “distressed debt exchange.” YRC announced the offer Nov. 25.
YRC rose 87 cents, or 18 percent, to $5.71 at 11:12 a.m. New York time in Nasdaq Stock Market composite trading. A gain today would be the shares’ ninth in a row since Nov. 20, when they fell to their lowest close since at least 1982.
The union concessions are “good for the stock and debt in the short to intermediate term,” Thom Albrecht, a Stephens Inc. analyst in Glen Allen, Virginia, said in a note today to investors. He rates YRC shares “equal weight.”
Albrecht said the union givebacks “may not change the earnings outlook” and might lower employee morale. Some other companies that like YRC carry freight for multiple customers in each trailer have cut wages and subsequently went out of business, he said.
YRC’s size and proactive efforts “in addressing cost and balance sheet issues give it better survival odds than predecessors,” Albrecht said.
YRC is the largest member of the Central States Fund, a multiemployer pension plan, with about 30 percent of the liability, Zollars said. United Parcel Service Inc. paid $6 billion to exit the fund, under a contract ratified by the Teamsters in November 2007.
Zollars said he has talked with Obama administration officials about relief from having to support the pension plan’s retirees from defunct companies.
“They understand the issue,” he said. “We’re also working with the Teamsters pretty closely on that issue.”
YRC, which is integrating its Yellow and Roadway national trucking brands, wants to further reduce costs as freight volumes this quarter are less than a year earlier, Zollars said.
“It’s not clear where the bottom is in this recession,” he said.
By Angela Greiling Keane for Bloomberg