YRC Worldwide Inc.YRCW

Morningstar Rating

Stock Research and Analysis

by Anthony Dayrit

It's no surprise that YRC Worldwide has struggled mightily throughout the prolonged freight recession, and it now appears that the industry giant is down to the last bullet in its gun. Although the firm integrated its national network, cut costs, and sold assets in a frantic effort to generate cash, these initiatives haven't been enough to stem the losses from continued volume declines. Read more

Bulls Say

Recent union approval of labor contract modifications will provide YRC with some much-needed liquidity and should generate cost reductions of around $45 million-$50 million per month for the next 18 months.

YRC is taking aggressive actions to improve its cost structure and liquidity position, including reducing wages and eliminating redundant service centers.

In 2008, YRC increased its footprint in China by acquiring a controlling interest in Shanghai-based Jiayu Logistics. This action added 3,000 vehicles and 200 locations to its growing logistics operations. Read more

Bears Say

Although the labor contract modification creates some breathing room, sustained weak volumes and pressured pricing mean YRC isn't yet out of the woods.

Because of costly union labor and restrictive work rules, YRC's operating margins are razor-thin, even compared with its LTL peers'.

Although YRC's massive LTL network possesses sizable capacity to handle customers' demands, asset intensity amplifies the company's operating leverage, causing margins to fall even faster than revenue during a downturn. Read more

Strategy

YRC's primary near-term strategy is to extract cost savings from the integration of the company's two national LTL networks. The firm is striving to improve its liquidity position and reduce its cost structure by selling excess real estate, eliminating head count and fleet assets, and consolidating sales teams. Read more

Management

William Zollars has occupied the CEO position since 1999, and served as president of Yellow Transportation for the three prior years. Overall, we think YRC's corporate governance is good. Eight of nine directors are independent, and we applaud the firm for electing board members annually, rather than staggering terms. Read more

Profile

YRC Worldwide is the largest public less-than-truckload (LTL) carrier in the United States. The firm operates mainly through its national transportation segment, which includes the Yellow, Roadway, and Reimer Express divisions (around 70% of total revenue). Read more

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