One sell-side analyst has thrown in the towel on YRC Worldwide (NASDAQ: YRCW).
Following a mixed bag first quarter 2020, in which the carrier reported better-than-expected results, announced it was unlikely to meet future financial covenants and opted out of taking questions from analysts on its earnings call, Stifel Financial (NYSE: SF) equity research analyst David Ross has tapped out.
In a Tuesday report to clients, Ross announced that he has suspended his rating and estimates for the less-than-truckload (LTL) carrier.
“Due to uncertainty around the current liquidity situation and no ability to predict the outcome of YRC’s requests for external relief, we are suspending our rating on the shares,” stated Ross. He went on to state that he views the stock as a “trading vehicle and highly volatile,” noting that it could see 50% or more swings in share price in the weeks and months to come.
The Overland Park, Kansas-based company ended the quarter with $880 million in debt, down approximately $23 million from the close of 2019, and available liquidity increased nearly $38 million to $118 million over the same period. The carrier would have met its adjusted last 12 months’ (LTM) earnings before interest, taxes, depreciation and amortization (EBITDA) covenant requirement of $200 million had it not received a waiver on the requirement for all of 2020 from lenders previously.
YRC reported net income of $4.3 million in first quarter 2020, 12 cents per share on a diluted basis and well ahead of the consensus estimate of a 57-cent-per-share loss. The after-the-market-close quarterly report sent shares surging more than 40% in after-hours trading on Monday. Shares of YRCW closed the trading session up almost 15% on Tuesday.
That’s about where the feel-good quarter ends.
The quarterly result included $39.3 million in net gains on property sales versus a $1.6 million loss on property disposals in the prior-year period. The gains more than saved the quarter and many don’t view them as a recurring tailwind to profitability.
Further, the company said it was unlikely that it would meet the $200 million adjusted EBITDA threshold during the first quarter of 2021 and would likely seek another waiver. The recent waiver allowed the carrier to convert most of its cash interest payments for the first half of 2020 to noncash payable-in-kind.
On its earnings call with analysts, management said that they wouldn’t be fielding questions from analysts due to a “tremendous amount of uncertainty surrounding COVID-19 and the rapidly changing environment.”
Ross notes that the first quarter “wasn’t too bad.” Revenue declined 2.7% year-over-year to $1.15 billion as tonnage per day declined 3% and revenue per hundredweight excluding fuel was down 3.9%. This was partially offset by a 3.9% increase in weight per shipment and 2.5 more operating days in the first quarter 2020 period compared to the first quarter 2019. Operating ratio improved 510 basis points, inclusive of the gains, to 97.6%.
However, Ross said the first quarter is “in the rearview,” pointing to a 23.9% year-over-year decline in LTL volumes for YRC during the month of April, significantly worse than competitors like Old Dominion Freight Line (NASDAQ: ODFL), ArcBest Corp. (NASDAQ: ARCB) and Saia Inc. (NASDAQ: SAIA) that recorded declines of 15.3%, 14% and 13%, respectively, during the month.
Also troubling are recent notices that the company has fallen behind on its commitments.
In a Friday letter to local unions with YRC members, the Central States Health and Welfare Fund noted that YRC was delinquent paying health contributions owed for the month of March and that the carrier advised them that it would be unable to make these payments in April and May. The fund estimates the three-month period will result in a nearly $75 million delinquency, in addition to the more than $48 million already owed by YRC to the pension fund from a prior debt restructuring.
Previously, YRC received a grace period for health and welfare and pension fund contributions to its union employees. The original grace period was for March contributions to be paid in April, but International Brotherhood of Teamsters management warned in a letter to the rank and file that additional extensions may be sought.
The company remains in perpetual turnaround mode, the latest referred to as a “multi-year enterprise transformation strategy,” that includes asset utilization initiatives, migrating all of its separate operating units onto the same technology platform, reporting all five brands on a consolidated basis, favorable work rules following the 2019 labor contract implementation, shuttering terminals, closing New Penn’s headquarters, debt restructuring, headcount reductions, a hiring freeze and suspension of short-term incentives.
Ross’ thoughts on the transformation: “A main result of COVID-19, in our view, has been to act as an accelerant on trends (that may have been moving too slowly) — essentially pressing ‘fast forward’ on life for both aging individuals and aging companies in poor health. YRC certainly fits into the ‘vulnerable population’ category, as it has been lumbering around with multiple preexisting conditions that made it vulnerable to shocks for years now.”
Ross sees the second quarter as “make or break” for the carrier and questions the company’s survival.
“At this point, we believe it’s dependent on two things: a) U.S. government assistance in the form of a grant to cover payroll, health care, and/or other expenses, and b) how quickly volume returns as the economy reopens this month. If we don’t get any good news in the next 30 days, we would not be surprised to see a wind down of operations on or before July 4th weekend.”
Lifer
Perspective from current YRCW employee having been through the different name changes, buyouts, subsequent mergers, layoffs, etc. This is definitely the worst it has been, but is inevitable due to the ineptitude of the revolving door of higher management and their continued recklessness. They’ve lowered headcount, but in the wrong areas. Last fall my department was praised as being a vital to the organization after other areas were seeing cuts. A couple months later after more people were let go, again we were advised that we were safe. A few weeks later, the news came that our entire department was moving out of state. We could move with it if they deemed us fit, apply for an entry level spot if available or quit. March exited with the entire department, as well as several others, getting furloughed. Par for the course with this ethics-barren company, notification was by a mass conference call from a large-salaried unknown entity. Upper Management has remained untouched. It’s a major indication of the company’s status when many life long employees in various parts of the company have left this sinking ship. Now the company is in the process of bringing Reddaway customer service back from the Philippines and have brought some of those furloughed (including lower management) back to do entry level work requiring zero knowledge of the industry. In all likelihood it is because YRCW can no longer pay their contract with EXL. Freight rarely delivers on time or intact. This organization has been dead for years, it’s way past time for the powers that be to call it done.
Left Years Ago
I got out long ago, best move I ever made. Morbid curiosity keeps me reading articles like this. The company cannot retain any quality middle management as they offer nothing beyond a paycheck. Anyone with any prospects flees, those remaining either have no alternative or feel they have no alternative. The company culture is abysmal. Senior management is uninspired and largely relies upon public humiliation via conference call as motivation. Speaking truth to power is, shall we say, frowned upon. It is thus senior management is convinced of their brilliance, and forever flogging the field for their failure to properly implement new initiatives. Introspection is a quality sorely lacking at the ironically named field resource center. There are quality, productive, motivated Teamster employees but they are sadly the minority. Most feel betrayed by the company and are looking for their pound of flesh. While the death of YRCW has been foretold many times, it certainly seems as imminent as it has ever been at present.
Rudy
Why do you blame the unions when everyone knows that upper management took millions out for their own greed.I was a Yellow Freight driver now retired and after working there for most of my years lt was a great company and a strong company and that doesn’t happen by having lazy employees .Perhaps you are a member of management hopeing to look for a cover up by blaming unions .
Frank
Its not the early 1900’s where a Union is necessary. I blame the Union and management.
Ive worked for YRC as an independent contractor for years, and let me tell you, union workers are the laziest bums I have ever seen in my life. YRC medds to reboot without a crappy union.
Jerry Fritts
It’s not like the early 1900? Are you for real? Look at the truckload industry,third world working conditions, over a hundred percent turnover of drivers since deregulation, Wall Street (the business community) even shreds “low driver pay “. Nonunion drivers sitting at docks 30/40 hrs per week for no pay, no
Place to park to sleep, weeks away from families, 1099 pay checks, no medical or piss poor
Benefits, study the 34 restat and you will find these drivers are actually driving 80-90 hrs per week not including the detention time, scum bag mgt flooding the market with newbies, indentured servitude, stealing from drivers through lease purchase, just to mention a few things. These are the same archaic mid evil, share cropping schemes that caused the unions! Tell me I am wrong but before you do that explain the hundred percent turnover that has been occurring since deregulation in the truckload sector st the same time the ltl model has less than ten percent because the non-union mgt
Knows they have to provide union like jobs to keep the union out. Wall Street analysts call “fedex a large nonunion unionized carrier”
Rudy
Why do you blame the unions when everyone knows that upper management took millions out for their own greed.I was a Yellow Freight driver now retired and after working there for most of my years lt was a great company and a strong company and that doesn’t happen by having lazy employees .Perhaps you are a member of management hopeing to look for a cover up by blaming unions .
Rudy
The day the unions are gone is the day we will need them even more. Do you really thing the trump labor board will ever stand up for the working class ,Hell no!
Rudy
Why blame the unions.Fact is the unions saved the company after the take over of Roadway and others.Blame the yrc leadership.They took millions out of the company that should have gone to save YRC.Upper management grabbed every penny they could to use YRC for their own personal cash cow .Lay blame where it should be .The unions did everything they could to save YRC.
Corey Holmes
Unions don’t run the company managment does
Dave
UNIONS! LET THEM GO BANKRUPT, DROP THE UNION, AND RESTART.
JC
Union workers suck. I’ve seen it first hand. Can’t fire them unless they threaten/commit violence or steal. YRC could overcome this impediment by hiring quality employees but would require Herculean efforts by HR. And Central States is a corrupt, mismanaged Union that has caused me personally 12 years of my life where I will get NOTHING in my retirement years.
Corey Holmes
It’s not the union fault yrc have been losing money for years. Blame that on bad management
Jimmy
We gave individually over 100k since as mechanics lost personal days and vacation 2008. It’s management it’s greed. They had plenty of money to pay off the loan and didn’t. 30 million a month in non payment to pensions Plus the workers have lost respect and packaged the freight in that way to prove it. A happy worker is a productive worker it’s a proven fact this is all about greed. They used the 2008 crisis to get the money from all the workers and other places like ABF gave it all back with bonuses and didn’t take half as much in percentages and now they’re using the Covid crisis to try to stab unions some more. And we are necessary during this total bullshit crises.
mike kas
absolutely right even in this article they say they had a 12 cent gain per share. gee I wonder where that went .to the greedy stockholders who are already rich,, GREED that’s all there is to it
Robert Perkins
Amen Central States in the union broke every truck line there was in Kansas City and then they stole the pension blind when I retired I got half what I was supposed to get it and now they want me to petition my congressperson so they can take more James p Hoffa Jr is the worst piece of shit that Union ever seen
Rudy be
Why blame the unions.Fact is the unions saved the company after the take over of Roadway and others.Blame the yrc leadership.They took millions out of the company that should have gone to save YRC.Upper management grabbed every penny they could to use YRC for their own personal cash cow .Lay blame where it should be .The unions did everything they could to save YRC.
lou colon
I let a good intelligent driver walk because I dont have a clue as a tm. dont worry my rich wife works for the power company I’ll be ok in my shiny pick up truck I wash every Saturday in the shop. I even have new ops manager he never seen the inside of a truck either but he wrapped pallets at Target so I hired him.
Russell
Your an idiot
Corey Holmes
Wow