What can a quarter 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 Tuesday at 23 cents a share. The stock, which trades on the Nasdaq stock exchange, is priced well below its 52-week high of $6.18 a share. Yet it represents a more than doubling of the yearly low of 10 cents a share plumbed not long ago.
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 along 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 YRC Logistics unit. The figure bettered 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, analyst for 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 contributions 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, not to mention to ensure the carrier's continued survival. A full resumption of pension contributions to 35,000 Teamster employees is expected to cost the company $500 million in 2011 alone. Given YRC's precarious financial condition, it is an open question as to whether it can meet that test or will be forced to ask the Teamsters to modify the contribution schedule.
With YRC's survival in doubt during 2009, many customers either abandoned the carrier altogether in favor of rivals or shifted at least some portion of their freight away from YRC. At this time, it is unclear if the shipper exodus is continuing or if YRC has stanched the bleeding and is winning back business that had defected.
Meanwhile, YRC faces delisting from the Nasdaq if its stock doesn't rise above $1 a share for 10 consecutive days between now and Aug. 30. To accomplish that, the company may execute what is known as a "reverse split," where it effectively removes a large supply of shares from the market in hopes of driving up the value of the remaining shares. However, companies are loath to undertake such a step because removing large chunks of stock from public ownership signals a lack of confidence in their own stock.
As he has for months, Langenfeld, the Baird analyst, maintains a price target of 0 for YRC stock. And as a financial website called 24/7 Wall Street commented yesterday, "this is still a very challenged and stretched situation." It added that with YRC stock at such low levels, the price is "more reflective of a lottery ticket ... than a stock with real value."
Gartner, Inc.