YRC stock: Dirt-cheap or bear trap?
What can 38 cents buy these days?
How about a share of stock in the nation’s largest less-than-truckload (LTL) carrier?
Shares of YRC Worldwide Inc. closed July 26 at 38 cents
a share, well below its 52-week high of $6.18 a share but
nearly quadrupling the yearly low of 10 cents a share
plumbed in early July.
Of course, a stock doesn’t descend to such rock-bottom
levels by accident. The Overland Park, Kan.-based carrier
had fallen off the cliff by the latter part of 2009 and needed
to complete a complex debt-for-equity exchange on New
Year’s Eve to avoid bankruptcy and possible dissolution.
Since then, it has stumbled along, surviving with its LTL
brethren in a market still plagued by subpar volumes, truck
overcapacity, and cutthroat pricing.
On July 12, YRC reported that second-quarter earnings
before interest, taxes, depreciation, and amortization,
known by the acronym of EBITDA, came in at between $24
million and $36 million, figures that included losses reported by the company’s discontinued YRC Logistics unit. The
figure beat analysts’ consensus estimates of a $12 million
loss and was a significant improvement over a $78 million
EBITDA loss in the first quarter. The second-quarter numbers indicate that the company’s operating “cash burn”—
long a concern of analysts—has moderated.
YRC reported that it had $142 million in cash reserves at
the end of June, up from $130 million at the end of March.
A line of credit that could be tapped without approval from
its lenders doubled in size to $8 million at the end of the
second quarter.
Daily tonnage carried by YRC’s regional carriers in the
second quarter rose 4. 5 percent year over year, its first quarterly volume growth in four years. Despite that, its regional
volumes still lag behind those of its competitors, according
to Jon A. Langenfeld, an analyst for Milwaukee investment
firm Robert W. Baird & Co.
Tonnage carried by the company’s YRC National unit, the
amalgamation of the old Yellow Transportation and
Roadway Express, fell 19 percent year over year. The second-quarter numbers represent a sequential improvement over
the 35-percent decline in the first quarter. However, the tonnage outlook for the National unit needs to improve if the
company is to achieve sustainable gains, Langenfeld said.
Bumpy road ahead
YRC still faces daunting obstacles. The LTL sector has not
participated in the broad trucking recovery, and YRC’s continued presence is likely to mean continued overcapacity
and rate wars that will erode the bottom lines of all carriers, including YRC.
The company is expected to resume in January contribu-
tions to the Teamsters pension plan that were frozen in
mid-2009 as part of an agreement under which the union
also accepted wage reductions in return for an ownership
stake in YRC. A full resumption of pension contributions to
35,000 Teamster employees is expected to cost the compa-
ny $500 million in 2011 alone. Given YRC’s precarious
financial condition, it is an open question as to whether it
can meet that commitment.
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