Don’t look now, but YRC Worldwide (YRCW) is pulling out all the stops to dress up its problems as successes. The company reported a Q4 profit of $23mm. Look closer, optimists. That profit is solely attributable to a one-time gain on debt redemption. Subtract that $52mm gain from the $23mm profit and the real result is a net loss of $29mm. One telling lesson is that the company continues to experience difficulty earning real money while gross revenues rose by 4%.
The company claims to possess rising pricing power. They’re going to need sustained increases in yield if tons per day keep declining by 5.2%. Consider the weakening competitive position of a company that relies on “pricing power” to keep revenues rising while tonnage is falling, and can’t even translate that combination into real operating profits. If that pricing power comes solely from fuel surcharges, it will evaporate when fuel costs eventually come down (and come down they will, because commodity prices move randomly over the long run). If it comes from LTL market leadership, that will erode with continued tonnage declines and further asset sales.
Kudos to management for turning a freefall into a slow decline, but YRCW’s problems persist. March 15 is D-Day for a deal to keep its balance sheet above water. Realistic solutions include debt haircuts and dilution of equity, so investors will feel more pain. Operating results that continue to be marginal will give management a lever to keep the Teamsters from demanding restored concessions. Persistent difficulties may be a blessing in disguise for YRCW and other truckers if they use these problems to keep a lid on the Teamsters’ greed and force them to actually do some work. Management has made it clear (at the very end of this article) that Teamsters need to be part of the solution by extending concessions to help the company survive. That’s asking a lot given the problems unions tend to cause.
Full disclosure: No position in YRCW.