YRC, back from the abyss, sees a better second half when its rentals fade away

Several years ago, an analyst wrote about YRC: “Most other companies that went through what YRC went through would be bankrupt by now.”

An excessive debt load and years of losses were the feature of the company that has both truckload services in its YRC Freight longhaul division and more regional transportation through three regional subsidiaries: Reddaway, Holland and New Penn.

The company–formerly known as Yellow Roadway until about 12 years ago–did survive, though it would probably be a stretch to say it has thrived. Its stock was about $19.70 per share in August 2015. It’s now near $11, and to get there climbed from about $8.25 in the last few weeks.

Stephanie Fisher, the company’s CFO, came to the Deutsche Bank Global Industrials & Materials Summit this past week, to make the case that its turnaround is on track. The biggest short-term burden it faces, Fisher said, are short-term leases that will be rolling off the company’s obligations as the year progresses.

That is a problem could be traced in part back to the company’s earlier issues and debt burden. “What we found in the third and fourth quarters is that we were short on equipment, and in some cases, the equipment was not in the right spot,” Fisher said. There were multiple reasons for that, she said, including the effects of hurricane season. But part of it also was that by reorganizing its debt over the past few years, “we had a lot less liquidity in late 2017.” As a result, as the market picked up, equipment needed to be leased, rather than purchased or brought in “off the fence.” Equipment that had been surplus in earlier years was no longer available.

In April, during the company’s first-quarter earnings call, Fisher addressed the long-term rentals issue. “As we went through the quarter, unfortunately those rentals did not come in all at the beginning of the quarter, in fact most of them came in the back half of the quarter in March,” she said, according to a transcript of the call provided by SeekingAlpha. “And so, we did experience higher short-term rentals in Q1 on a year-over-year basis, kind of consistent with what we saw in Q4, we were able to reduce short-term rentals slightly towards the end of the quarter but as you can see from our purchase transportation line we did experience a significant increase on a year-over-year basis.”

The company’s purchased transportation expenditures were almost $21 million more in the first quarter than in the corresponding quarter of 2017.

Bringing in new equipment, finally

Since 2015, Fisher said and illustrated it in a slide, the company has been able to bring 3,300 tractors and 7,300 trailers into YRC’s network. They are still coming in, she said. As a result, “the influx (of short-term rentals) we had in late 2017 is expected to go away by the third quarter.”

Fisher said during the 2012-2014 period, YRC had a capital expenditure ratio that was “woeful.” About 1% to 3% of revenues were spent on capex, when the industry average was about 5%. That ramped up beginning in about 2015, when the new tractors and trailers Fisher mentioned began coming into the system.  In the first quarter, YRC reported capex and operating leases of about 8 percent of revenues.

Fisher touted YRC’s efforts at debt reduction. At the end of 2013, the company had debt of $1.36 billion, spread out over nine individual debt instruments. By the end of March, it was down to $918 million, and it was in three instruments. A great deal of that occurred in the first quarter, when it agreed to extend the maturity of its contribution deferral agreement notes with the Teamsters from December 2019 to December 2022, reducing the principal but paying a short-term hit of $25 million.

Cutting an OR that is at 100

Fisher expressed a view that has been heard in the webex’s and earnings calls of many companies of late: we’re not just going to chase business for the heck of it. YRC assumes an industry OR of 90-91, Fisher said. “We believe we can improve YRC Freight to a 97 OR,” she said, “and the regional companies to an approximately 95 OR.” That would result in a benefit in the company’s EBITDA of $70-$80 million, she added.

The company’s consolidated operating ratio for the first quarter was 100.4 compared to 100 a year earlier. It was 100.9 at YRC Freight and 98.9 at the regional carriers. “If we have volume in the network that is not profitable, we are focused on that, anything where we’re operating with over a 100 OR,” she said. That will be the focus of ongoing contract negotiations with customers, Fisher added.

Deutsche Bank chief transportation analyst Amit Mehrotra, who moderated Fisher’s discussion wondered why they would pursue anything even at an OR of 100. She replied that there are times when adding to the density of some lanes may mean a short-term service that doesn’t make much sense on its own, but when combined with other activity in that region, “creates efficiencies and helps improve margins.”

Getting ready for next year’s labor talks

Being a unionized carrier, YRC is not in position of needing to raise wages at this point to attract new drivers. The Teamsters did make concessions during YRC’s most difficult days, and Mehrotra said there was has been “bluster” from the Teamsters getting prepared for negotiations on a contract that ends in March 2019.

Fisher would not discuss wage numbers, but said YRC is going to need “flexibility in the work force to actually run the business the way it needs to be run.” She discussed a scenario in which a worker would be more of a utility worker, allowed to perform more functions than at present. Mehrotra asked whether it was “realistic” to think the Teamsters would move toward that model. “The good news is we have outstanding (union) leadership,” she said. “They have been very helpful in the last 18 months. I think in the next nine months we can spend time talking to them, and letting them know the issues so that this is not a surprise.”

Recent price increases have averaged about 6%, Fisher said, though some have topped out at 15%.

(Editor’s note: the story has been changed to reflect that Stephanie Fisher, on the earnings call in April, was discussing long-term rentals rather than short-term rentals.)


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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.

One Comment

  1. YRC we need a raise in are pension and wages and everything else can stay the same. We are done giving back.

  2. Each member has given up 15%, pensions, and unimaginable working conditions!!! We will not give back any longer. This was agreed to be a joint sacrifice between union members and management. However it’s turned out to be strictly union membership! If for one minute the corporation thinks this will continue they are sadly mistaken. As the matter of fact, it is the general conception and belief that at the end of this MOU we should "snap" back and be given at a minimum a $5.00 per hour before negotiations are even considered! This has been a hardship for the membership more so than the company and it’s time to make things right!!!

  3. We have given 15%of our pay,plus our retirement to keep our jobs.Every other company has given its employees back their pay,its time YRC at least gave back the 15%its been almost 10 years and things have definantely gotten better,especially when its all over that their is a shortage of drivers.UPS didnt give anything and their considering a stike??Hmmmm whats that telling you ,YRC?

    1. Hope someone tell them we can’t get people at $18+ a hour when everyone else gets our top pay to start!!! ABF is taking all our drivers due to a decent contract. I hope there would not be a strike but please union or management please don’t insult the people of YRC Freight. No strike it will kill the company think about it…

  4. USF Holland is a great company I love my job some of the best mangment I have ever worked for I love being a teamster it mean a lot to me that being said we need a raise in a bad way we are one of the lowest payed in LTL it’s time to time to make it right 15 % or my vote will be no I can go elsewhere and make 5 to 8 dollars more a hour I work with people that has gave up 100000 dollars in last ten years make it right yrc

  5. As a Teamster for over 30 years I have seen this company take away my vacation time my pension and so much more I am tired of giving back to a company that does not care for the people that work for it no more give backs

  6. Well after seeing this article and comments I’m in shock that YRC needs flexibility. It needs better management than what we have now. As a business owner/coach P/T, I have never seen as much wasted time and money being used and spent. When the Teamster employees of all the YRC companies have given back over 4 billion dollars in concessions over the last 10 years and counting, that’s not to mention the cost of a $3000.00 a month pension check per person based on 30 years of service (give or take) which would equal to $1,800,000.00 in the bank or investment at 2% yearly conservatively. Now they want to ask our International Union for more and our employees (members) for more flexibility. You got to be kidding me. I could go on and on, but I’ll stop before I embarrass this corporation and the International Union more than it has already been.

  7. I’m a Reddaway driver who are they kidding we all must stick together on their BS. And we know what we need to do.

  8. Who is she kidding! Yellow just takes and takes. Then they cry We need more. My pension runs out in 8 yrs, partially because of YRC not contributing for 8 yrs now. How much of a bonus will top management get this year. ENOUGH IS ENOUGH! Danny Foreman retired Road way driver.

  9. Formerly known as yellow roadway…who told you that lie….it was 2 individual distinct separate corporations…roadway was making money yellow was broke but in a reverse buy yellow purchased roadway with roadway money a deal to keep yellow going the union calabritaed the reverse buy to maintain the end pulling in 2 combined keeping yellow breathing financially..but roadway was making profit and had some debt but not as significant as yellow near collapse

  10. It’s now in 10 years of 15% ..extension ends in 19 will they begin the campaign to request for another extension.. ??? At over 200k per man in subsidies surely not

  11. I dont really understand what YRC wants from us. I drive a really old truck that hardly runs. I pull really old beat up trailers. Where is management in all of this? I know the people up top have had no pay cuts. I know they dont worry about there families. I will not be flexible. I want what I think is what we all should have. Fair pay for what I do. This company is a joke on broken wheels.

  12. Enough is enough, Ante up! or close the doors. Anything less will get a NO!!! vote from me. The biggest problem with this company is no communication amongst management. In the last 10 year’s it’s been a revolving door for CEO’s to get rich at the Teamster’s expense. BUCKLE DOWN YRC!!! It’s going to be a rough ride come next April.