In a letter to rank and file members, the negotiating committee of the International Brotherhood of Teamsters informed members that YRC Worldwide (NASDAQ: YRCW) was given a grace period on health and welfare and pension fund contributions due to volume declines associated with the coronavirus.
The letter states that the grace period extended is for March contributions that were to be paid in April and that the carrier may seek an extension for “perhaps a few additional months going forward.” All of YRC’s less-than-truckload (LTL) operating companies – YRC Freight, Holland, New Penn and Reddaway – were reported to have experienced a “sharp decline in volumes over the past few weeks” due to customer closures and a weakened economy.
Importantly, the letter stated that YRC has not asked for any wage concessions from the union and plans to pay the contractual wage increase agreed upon in the labor deal that was ratified in May 2019.
Manufactured goods account for roughly 85% of LTL industry tonnage. Like most LTL carriers, YRC has exposure to an industrial customer base that has been on the decline for a year and a half now. The PMI, a survey of manufacturing supply executives, was under the all-important 50% level in March, implying the U.S. manufacturing sector is contracting.
In March, the company issued an intra-quarter update announcing that tonnage was down 1.5% year-over-year in January, but up 0.3% in February. However, yield, or revenue per hundredweight, was off 4.2% year-over-year for the first two months of the year.
The precursor to another quarter of declining results prompted YRC activist investor, Barna Capital Group, to announce plans to replace three of YRC’s board members. The investment group said YRC’s early-2020 performance highlighted by “softer pricing while volumes fell at the same time,” was not as strong as results reported by other carriers.
In comparison, other LTL carriers have seen mixed results. ArcBest Corporation (NASDAQ: ARCB) reported that its asset-based revenue increased 1.5% year-over-year in the first quarter of 2020 through late February, but competitor Old Dominion Freight Line (NASDAQ: ODFL) reported that revenue per day declined 0.2% in January and 1% in February. Saia, Inc. (NASDAQ: SAIA) reported a 7.7% year-over-year increase in tonnage during January with only a 0.4% increase in February. However, Saia’s favorable year-over-year comparisons from an aggressive Northeast expansion campaign have ended.
The notification to the Teamsters comes two weeks after credit rating service Moody’s Investors Service downgraded the carrier’s debt, liquidity and default probability ratings, citing general market deterioration to the global economy due to the coronavirus.
Specifically related to YRC, Moody’s sees “thin margins, lack of revolver availability and limited covenant headroom” leaving the company “vulnerable.” The report went on to suggest that the carrier could struggle to realize expected cost savings from its new deal with its unionized labor force given “an already weak freight environment” and that its network optimization strategy could be at risk due to a slowdown and disruptions.
YRC recently combined its sales force from four teams to one and is migrating all of its separate operating units onto one technology platform. The company’s goal is for its customers to be able to access all five entities through one network under one point of contact. These moves, along with the previously implemented new labor deal as well as a new financial structure, are expected to lead to improved results.
In September 2019, YRC entered into a new $600 million term loan agreement providing it with additional liquidity, a lower interest rate, less restrictive financial covenants and extended the maturity date to mid-2024. The new leverage covenant requires YRC to maintain adjusted last 12 months’ (LTM) earnings before interest, taxes, depreciation and amortization (EBITDA) of $200 million, a threshold the carrier has not breached on a calendar year basis since 2011.
However, YRC was recently granted a waiver on this covenant from its lenders for the remainder of 2020.
YRC’s 2019 year-end earnings report showed it generated $210.6 million in 2019 adjusted EBITDA, only modestly higher than that required by the lending covenant. The “thin margins” referenced by Moody’s were a full-year operating ratio (OR) of 98.8% in the company’s freight division and a 100.3% result in the regional segment.
OR, operating expenses expressed as a percentage of revenue, is the inverse of operating margin.
2019 was the last year the two divisions will be reported separately.
YRC reported a net loss of $104 million, or $3.13 per share, in 2019 and ended the year with $902.8 million in debt and $80.4 million in liquidity compared to $203.8 million in liquidity at the end of 2018. YRC reported $22 million in cash flow from operations during 2019, down from $225 million in 2018 and $61 million in 2017. Cash from operations less amounts needed to fund capital expenditures (capex), or free cash flow, was $96 million to the negative. The carrier’s high debt load/interest expense and cost structure make it difficult to reduce leverage.
In 2019, YRC’s union employees accounted for 79% of the company’s 29,000 total employees.
William bair
I was formally a Yrc employee which I have retired only because the outfit is a joke they’re practically not paying anything into the pension and the job is not going anywhere we have taken cuts after cuts after cuts and now they want to make excuses I think they should just close the doors be done with this outfit it’s a losing sickening job anymore sorry to say bad things I just don’t have anything good for the members
Robert Singleton
While other companies are giving pay increases and bonuses to there employees for working through this YRC
is trying to to take advantage of there hourly employees that they screwed over for 10 years with conessions that’s just my opinion they crash the stock buy it up when it goes up they sell it off crash it again but what do I know I’m just a truck driver.
Hey fella , olive cheese snacks, italia
USF Dugan south of Youngstown Ohio and New Penn are yrc companies do they get anything. They do A Duie Pyle warehouse loads
Dan Desrosiers
I worked for the union 13 years,in the early 70’s..the union local 25, 49, 290…at the end my job took 5% of gross pay an the union let them, then allowed the company was allowed not to pay H,W.for 3 years ,an liedto all employees..
Now that a have tried to get my pension for 10 years , Teamsters said sorry no pension for you.reason is the company only paid 9 years 10 months. Lossed every penny. Good luck yrc drivers.. no money for you..
Frank wise
What are you that stupid? All pensions are vested in 5 years. Must be some of yrc management written in,. Very sad
Jarrod d gibson
So glad I jumped off that ship 6 years ago. Good luck to you all.
TCS53
Put a fork in ‘em,they’re done. They’ve been done since the merger. The only thing keeping them afloat is Holland!
Jon Collier
As always you forget your Canadian counterparts YRC Freight. They have made money for YRC and because of the Dollar exchange continue to do, so excepts that the Union won’t allow then to haul fright more directly from Chicago or Dallas like they used to under Roadway. They haul quicker than FedEx but the Teamsters wont let them. How stupid is that. You can’t build a company and maintain Union jobs on slow deliveries. Where is the common sense in this company.
John
O waaaaaah if uppermangement as in CEO CFO COO Didn’t keep pilfering the company an take an acceptable wage for a failing business Who needs 4 million dollars a year salary it was to be 800,000 want happened fire all those douche bags then maybe they could survive strike that dont fire them they all have
GOLDEN PARACHUTES CLAUSES just cut the hell out of the pay and make sure HR isn’t in bed with then an stop giving then raise ….for what breaking the company bank way to go Darren Hawkins
Barry
If YRC wasn’t so dishonest, they wouldn’t be having these problems. I recently shipped an item with them, and they sent me a bill stating that the item I shipped weighed DOUBLE what I said it weighed. I weighed the item and it weighed 400 pounds. YRC said it weighed over 800 pounds. I had previously shipped the same exact item and it weighed only 400 pounds. They basically charged me double. Will never use them again.
Donna
Next they will be asking for another 15% pay cut and the union will allow it. People at YRC are always screwed by the union. YRC is known for their taking advantage of any downturn to screw their drivers. Union allows it. Look at the allowances and things put in place for UPS but at YRC you come in to work and they spring on you that you need a mask to go into California. When you tell them it’s impossible to get a mask at such short notice they tell you that’s your problem.