YRC "making steady progress" toward sustained profitability in second quarter

John D. Schulz
Logistics Management
13, 2013

YRC narrowed its quarterly loss to 39.6 million on $1.243 billion revenue, compared with a net loss of $104.2 million on $1.251 billion revenue in the 2012 second quarter. Consolidated operating income decreased slightly from $15.5 million to $14.3 million, or by $1.2 million.  Operating income in 2013 included a $1.3 million loss on asset disposals compared to $6.5 million gain on asset disposals in 2012.

YRC, which has lost in excess of $2.6 billion in the last six years, has continually improved its long-term financial picture since James Welch replace Bill Zollars as CEO two years ago. Welch emphasized on a conference call that YRC is continuing to improve its long-term financial picture despite slightly higher costs associated with capital expenditures and huge operational changes YRC is rolling out designed for long-term financial improvements.

The Overland Park, Kan.-based company reported adjusted earnings before interest, taxes and debt (EBITDA) for the second quarter of 2013 of $74.7 million, a $4.6 million improvement over the $70.1 million adjusted EBITDA reported for the second quarter of 2012.  Included in adjusted EBITDA for the second quarter of 2013 is a $6.3 million charge related to the network optimization that was implemented at YRC Freight in May 2013.

Welch described the quarter as "steady progress" toward it long-term objective of regaining "a leadership position in the LTL industry."

In the second quarter, Welch said, YRC made investments in newly leased tractors and trailers, completed its rollout of 10,000 mobile handheld productivity devices for city drivers, and completed the second largest network optimization in YRC Freight history.  Welch called those expenditures "the first meaningful investment in equipment in four years."

YRC Freight posted a 1.5 percent improvement in revenue per shipment, an indication it is shedding unprofitable freight as its overall revenue declined by 2.9 percent. YRC's regional carriers (Holland, New Penn and Reddaway) had a 0.1 percent increase in revenue per shipment as operating revenue rose 3.5 percent.

YRC Freight reported an operating loss of $8.5 million and an operating ratio of 101.1, a slight decrease over the 2012 second quarter. YRC's regional carriers reported an operating profit of $25.2 million, a 10 percent increase over the year-ago quarter. The regional group posted a 94.3 OR, a performance Welch called in line with "market levels."

"While the regionals continue to excel in their markets, YRC Freight faced some headwinds during the implementation of the network optimization plan," Welch said.

YRC recorded a one-time charge of $6.3 million related to the network optimization, which Welch called "a small investment in what we anticipate will be approximately $25 to $30 million in annual savings."

Welch said 2012 was "a year of progress and 2013 is the year of performance, and we continue to deliver on that performance. Going forward, we remain focused on delivering incremental productivity improvements, consistent service and equally strong operational results. 

"We are confident in the position of our company and believe we have opportunity to grow the business, improve profitability and deliver high-quality service for our customers," stated Welch.

Wall Street was mixed on YRC's turnaround story. Its stock, which had zoomed from $5 per share in May to a high of nearly $37 in early July, fell 21 percent on the day of YRC's latest earnings announcement to around $22 per share. Independent analysts were much more bullish on YRC’s long-term future.

"I give credit to both union and management," Satish Jindel, principal of Pittsburgh-based SJ Consulting, told LM. "Management can only do so much. You have to rally the people and have them believe in the management. Management gave them a reason to believe."

Safety continues to improve at all YRC units. Its workers' compensation costs are falling as it continues to settle more claims than are filed. The net result is a reduction in the number of open claims and a reduction in associated liabilities and outstanding letters of credit supporting these programs, Welch said. 

In the second quarter, YRC reduced its outstanding letters of credit by $43 million, or 10% from $429 million to $386 million, according to Welch.

The most challenging part of YRC's turnaround remains its long-haul YRC Freight unit, which is the combination of the former Yellow Freight and Roadway units.  Last May, it implemented the second-largest network optimization plan in its history of our company, according to Jeff Rogers, president of YRC Freight.

"During implementation, our execution was hampered due to increased shipment volumes we were experiencing at the time," Rogers explained. "Service, operations and financial results were adversely affected as a consequence. 

"The good news is the optimization will increase density in the network, result in fewer touches of shipments, increase load averages and reduce line-haul miles.  The great news is the change is complete, service is moving back to pre-change levels, and this is absolutely in the best interest of our customers and our long-term success," said Rogers.

At June 30, YRC's liquidity, including cash, cash equivalents and availability under its $400 million asset-based loan facility (ABL), was $218.7 million.  The ABL borrowing base was $378.9 million as of June 30, 2013.  A year ago, that liquidity was $248.7 million.  For the six months ended June 30, 2013, cash used in operating activities was $18.2 million as compared to $16.6 million for the six months ended June 30, 2012.

"We were able to slightly improve liquidity during the second quarter despite increased cash outflows for capital expenditures, non-union pension payments, and unemployment tax payments," said Jamie Pierson, YRC's chief financial officer. "Our operational improvements and focus on working capital management continue to provide us with sufficient liquidity."

YRC has couple of debt maturities coming due in early and late 2014 and then again in early 2015.  Pierson said it recently retained Credit Suisse, in combination with its financial advisor, The MAEVA Group, to assist in developing "a broad range" of refinancing and recapitalization options.

"We have a number of constituents to consider and we are currently in the process of evaluating all alternatives," said Pierson.

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