Soon to be doing business under the Yellow banner again, YRC Worldwide (NASDAQ: YRCW) CEO Darren Hawkins said he likes the direction the company is headed.
Presenting virtually at the Stephens Annual Investment Conference on Wednesday, Hawkins said he has “a lot of confidence” in the restructuring the less-than-truckload (LTL) carrier has in place, noting that broader demand should continue to serve as a tailwind.
Demand to provide a tailwind
Hawkins commented that the consumer remains strong and willing to spend on a variety of do-it-yourself projects around the home, which he explains have gotten a “turbocharge” during the pandemic. He sees the high-demand environment as a tailwind as YRC’s exposure to e-commerce has grown in recent years.
He also noted recent trends in the industrial markets and housing were encouraging. The Purchasing Managers’ Index, a survey of manufacturing supply executives, surged to 59.3% in October from 55.4% in September. A reading above 50% implies expansion in the U.S. manufacturing sector. This was the fifth consecutive month the index was in growth territory. The shipment of manufactured goods can represent up to 80% of total freight for some LTL carriers.
YRC reported tonnage inflected positively year-over-year in October, up 1% to 2% following a 2% decline in September.
While uncertainty around COVID remains a concern, Hawkins believes the company is in a good position entering the new year as low inventory levels continue to support increased demand in truckload (TL) and LTL.
Hawkins believes price increases in 2021 will yield levels necessary to recoup increases in cost buckets like purchased transportation, insurance, and benefit and wage increases of 3% to 4% per their union labor contract. The current driver situation, down at least 200,000 drivers in Hawkins’ estimation, is expected to support higher rates. He said the barriers to entry are very high in LTL, and no new competitors are showing up to move the freight.
During the third quarter, YRC reported that contractual rates improved throughout the period, with September providing the highest increases.
Restructuring and buying equipment
On 2021 initiatives, none were larger than the planned recapitalization of its fleet. The company has drawn the first $75 million from a $400 million second tranche of its CARES Act Treasury loan. This portion of the loan will allow YRC to replace its aging fleet. Increased costs associated with operating older equipment — fuel inefficiency, maintenance, downtime, and leasing versus owning — have led the carrier to inferior operating results compared to other union LTL carriers.
“We’re really wanting this to be a show-me story; we want to prove that through our actions,” said Hawkins.
The ability to self-fund equipment purchases through the first $400 million and beyond is expected to drive significant expense reduction. YRC plans to take delivery of 300 new tractors and 950 new trailers before year-end. The remainder of the second tranche is expected to be exhausted in 2021 as the company takes weekly delivery of rolling stock.
Network optimization has resulted in a reduction of terminals. Hawkins said the company will likely end the year operating somewhere between 330 and 333 facilities after starting the year with 351. The planned consolidation to 325 units or fewer will continue over time, but the carrier doesn’t want to risk losing out on freight opportunities in a tight trucking market.
YRC will also increase its usage of purchased transportation as allowed under its 2019 contract with labor. The agreement allows them to reach a 29% purchased transportation threshold in the national network and a lesser level at LTL carrier Holland. Management didn’t provide an estimate of the potential cost savings this initiative could bring.
HNRY Logistics growing up
The company’s logistics segment, HNRY Logistics, is getting bigger as well. Hawkins said some of the unit’s relationships with the largest purchased transportation providers in the industry have allowed the segment to expand meaningfully. The unit has been able to provide freight transportation options to customers through third-party capacity and YRC assets. He said most of YRC’s 200,000 customers actively engage logistics solutions, which creates a good cross-sell opportunity.
Results in the division aren’t meaningful enough to be broken out separately in financial reports, but management noted that may change in the near future.
Sly
Nice, more trucks that can only go 62.5. I’m so glad I left that company. I don’t know why anyone would continue working for them. I remember management telling me to only get enough diseal to get back home. Bald tires / trucks with no locking diff / cheap chains to drive in blizzards. All the while other drivers would take up for the company.
Niko
Why are you buying new equipment when you have no drivers to drive them? You have to raise the pay if you want to keep drivers plus start paying more into the pension. Stop forcing people on triples and sleeper teams you are short over 200 drivers in the Chicago area.
BMH
Quiet as it’s kept yellow would have bit the dust back in 2003 if they had not got a hold of a good solid company called Roadway. Yellow had lost its hazmat license. Then they got Roadway and destroyed a fortune five hundred company. Roadway would still be running in the black if they had never got entangled with yellow Frt. Its inevitable yellow will sputter out because they didnt listen and adopt Roadways model and continued to do business the yellow way. They also treat their bread and butter( the drivers ) like crap. I know I worked there. Coupled with being the lowest paid is the reason drivers leave and seek driving jobs elsewhere. Roadway drivers never left the company because it was solid and ran in the black because it took care of its drivers
Ben
This company is ripe for the hostile takeover and restucture by a wall street investor not a tax payer bailout. Where is the bailout Money for the small fleet owner who is going under for no fault of their own? This is unbelievable.
Dale
They should just close the doors on So called Yellow Freight, quite wasting tax payers money to keep that company alive.If you look at the History of “Yellow they use company’s money they bought to the point of bankruptcy & then close the doors.Look it up. The company is not worth it.
Michelle Thomas
Just retired we were definitely under paid lost alot including some of our pension take care of the people that kept this company going we gave up alot to save this company
Dale Harp
They also have the slowest equipment in the industry they will never make money because they can’t compete with their competitors.
Michael
Oh for the love of God, let this dinosaur die already. This is a tax payer backed loan that will NEVER be repaid. Over paid union drivers plus antiquated equipment with a dash of top heavy management equals a capsized Titanic at the first headwind that blows. If the government is so desperate to throw money away, just drop a plane load of 100’s out the back over Chicago. At least some of that money will find it’s way back into the Treasury at some point.
Dean
For the love of 31 000 hardworking Americans.
Please first learn about Fiat money. YRC is the lowest paid LTL Company NOT over paid.
Steven Davidson
Michael seems a little uptight
Andre
Over paid, the truck drivers are underpaid and over worked. Not even at the starting pay of other companies. Everyone’s quitting.
Jay
First headwind was COVID 19. We are still in business. Pay your taxes Michael
Chris Branagh
F.Y.I. the unions given back 15 percent of wages and 0 increase over a 4 year period. Drivers are the lowest paid in the LTL industry.