YRCW: NO SUSTAINED ECONOMIC RECOVERY
YRC WorldWide is tanking over 50% on bankruptcy speculation. The large trucking company has been entangled in brutal labor renegotiation’s and is at the heart of the economic downturn with their highly economically sensitive transport based business.
On Friday the company reported a $158.7MM loss which was followed up by a debt exchange announcement this morning. Investors are growing increasingly concerned that the announcement could result in an eventual Chapter 11 filing. Although the company is having cost difficulties (primarily labor related) the weakness at the company is primarily economically related. On the conference call CEO Bill Zollars detailed the economic struggles which we continue to see across the entire real economy. His comments would be most unwelcome to anyone who has bought into the recent stock market surge which is now not only very expensive, but pricing in very optimistic economic and earnings growth in 2010:
“The operating environment remains very challenging as we continue to face a difficult economy that appears to have stabilized, but is not showing any signs of sustained positive momentum. We remain cautiously optimistic that the economy has bottomed out, but it remains too early to know for sure. We’re not anticipating any growth in the economy for the remainder of this year and at least for the first half of next year.”
I think it’s safe to say that the stimulus based recovery is almost entirely non-organic. Without further aid from the government and the Federal Reserve this liquidity driven market is likely staring at a very difficult road ahead, if not the dreaded double dip.
It’s pretty safe to say the economy would still be in the doldrums without the government’s help. I would say I am in the double dip camp, except that I don’t think the economy ever actually recovered at all at Zollars so clearly says. We’ve just stabilized at a low level of output. You’d have to be nuts to be buying into this market at 20 times earnings.
TPC Reply:
November 2nd, 2009 at 2:12 PM
The recovery in the real economy is weak at best. That’s certain.
Roberto Reply:
November 3rd, 2009 at 10:13 AM
20-1 P/E ratio… guess again! The way P/E ratios are figured were changed by S&P back in 2001-2002. P/E ratios now use operating earnings not total company earnings. This leaves out several things. Among them interest on debt… Hello!
Actual P/E ratios would be at least double, perhaps more if interest was included.
This is the biggest sham market ever. Caveat emptor! Hava great trading day.
-Roberto
Tanking on dilution from debt for equity swap, not bankruptcy concern. this is effectively a prepack.
TPC Reply:
November 2nd, 2009 at 1:44 PM
This is obviously their last ditch effort to avoid BK. This is a clear sign that BK is a concern. Not only does it dilute shareholders, but is likely their last attempt to avoid filing in the next year.
LIBOR Reply:
November 2nd, 2009 at 3:40 PM
Actually it wasn’t “last ditch”. They were alright on maturities into early 2010 when BK would have been a greater concern. The equity was worthless, but the (artificially) high stock price allowed them to do a swap and salvage SOME equity value. This is win/win for the sub debt and frankly the equity becuase recoveries would have been terrible in BK and the equity was only a trading sardine.
Biggest winner: teamsters who just became more senior in the cap structure.
Biggest losers: CNW, ABFS, ODFL who now lost their best hope of capacity exiting. Pricing is brutal (on top of volumes being down >10%) and they’re all going to be duking it out for the next 18 months until someone falls.
Zollars is a thoughtful, honest man. Many of his peers, on the other hand, will keep on obfuscating until they file. It is too bad for Zollars that he is not running a bank: then, if he did a debt-for-equity swap, his share price would rocket.
Sir, your blog is taken as a slam on the unions and obviously you are no transportation analyst. If you knew what you were talking about specifically with this company, you would know that the employees, union and non-union, have taken massive paycuts that have resulted in incomes such as mine and my fellow coworkers being 30-50% for 2009 than what we made in 2008, and that does not account the freeze of retirement cuts in form of pension payments for union employees and 401K match for non-union employees.
The real problem with YRCW is that the integration of the Yellow and Roadway units that occured in March, happened to go off with more mishaps than a zebra has stripes. That led to a massive loss of shippers, which in turn led to revenue losses and lost market share. In fact, the largest unit of YRCW, YRC National Transportation, (formerly Yellow and Roadway) is barely the size of one of the former trucking giants on it’s own prior to the March merger.
For more accurate information about YRCW, you and your readers should go to http://insight.yrcw.com/ . Thank you.
TPC Reply:
November 2nd, 2009 at 4:05 PM
And your post, sir, implies that your company is simply the victim of circumstance as opposed to poor management, horrible cost structures, a burdensome union and a disastrous and poorly executed merger.
Granted, the weak economy hasn’t helped, but to imply that the union and management are not to blame at all for the current predicament is just a blatant lie.
Robby Reply:
November 3rd, 2009 at 6:24 AM
Always let sleeping dogs lie!
Didn’t YRCW just work a deal with the union drivers for stock in exchange for givebacks? After that it appears that they might be finding a nice way to wipe out the common. Labor is SOL. Boy, the union might have screwed this one up.
Unless you are a coal miner, ALL unions stink.
Will Buffet’s buy-out of Burlingame be the the final nail in the coffin for the failing trucking industry?
Does anyone here have any information about ID Global. Their website has been taken down and supposedly trading has been suspended. There still seems to be some
trading activity on the pink sheets.
-Roberto
I am in the industry in a management capacity and consider my self an expert. The root of the problem here is the lack of capacity from the carrier to secure business. Allthe problems are based on lack of business. Yellow has a very poor if any, sales culture, most of the sales people I see for the YRFC network are ex operations people that have no idea how to do a sales call. All they want is to take you to lunch as if this is going to get them business. Move a step up, and you run into the missconception, that just because they are the biggest and have all the bells and wistles, thay can provide better service. Move a step up and senior management belives that just on Brand they should get business.
Zollars should have gone out 5 years ago, the same good boy network keeps running the copany with no fundamental change. Even if they come out of this, nothing is going to change with this company. No matter how they refinance themselves, the core, the rainmaking philosofy has to change. It is a new world out there integrateors, 3 PLS, brokers. You just can not keep going this way
I have been concerned with the long term viability of any of our shipping companies.
I just read on another news site:
http://www.visionvictorymanifesto.com
There is a reference there that the auto industry proposed a fuel tax hike that would immediately take gas to $8 a gallon. (to get people to buy more efficient vehicles).
Does this mean that diesel would follow?
Would companies like YRCW be doomed to fail anyway??
Fedex also is running some ad campaign stating that UPS is asking for a ‘Brown Bailout’. is this stuff for real???
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