CEO Welch Considers 2012 a ‘Rebuilding Year’ at YRC

Six months into his bid to turn around YRC Worldwide Inc., CEO James Welch does not mince words as he mixes positives like “a 180-degree turn” in once-flagging morale with reality, saying “2012 will be a rebuilding year.”

In a Jan. 31 interview with Transport Topics, the man who left in early 2007 and returned on July 25 to a company that lost $2.9 billion while he was gone, compared YRC with “a fighter against the ropes” and said flatly, “It’s time to put up or shut up at this company.”

“You can feel the morale changing,” said Welch, as employees welcome a renewed focus on YRC’s less-than-truckload roots. That’s a real change from the many “dark and empty” eyes when he met employees while walking every floor of YRC’s Overland Park, Kan., headquarters soon after his arrival.

“If rebuilding morale was 95% of the task, I could proclaim victory,” Welch said.

Unfortunately for YRC, morale doesn’t equal profits — yet.

While losses have narrowed to $264.9 million in the first three quarters of 2011, YRC’s still losing money at a time while competitors such as Arkansas Best Corp. are profitable.

YRC’s fourth-quarter earnings haven’t been announced, but Welch said, “It was a good fourth quarter from a revenue standpoint.

“You are going to see us focus on yield improvement and gaining business,” he added. “As the year goes on, (financial) comparisons (to the year-earlier period) will be more favorable.”

Welch also said YRC Freight’s on-time deliveries have “dramatically improved,” from a weak 87.3% when he rejoined the company to 93.5% in late January.

He did not give specific operating or financial goals for this year’s “rebuilding.” He did, however, set a goal of returning YRC Freight’s operating ratio to historic levels below 96, while hitting 94 at the regional units. That’s an average of 5 percentage points below third-quarter levels.

If achieved, such a performance could generate about $215 million in operating income and allow YRC to also lower borrowing costs and further boost results, he said.

Welch believes a planned YRC Freight change of operations in April could make significant progress toward those operating goals. YRC intends to create a consistent operating philosophy by trimming five distribution centers and shutting down a next-day freight operation at the national unit (2-6, p. 8).

“There is still a Yellow and Roadway way of doing things,” he said, even though the two national LTL units were “slammed together” almost two years ago. The national freight companies’ operations were combined more than five years after Yellow Corp. bought Roadway in 2003.

The continuing divide is understandable because both companies have a proud history dating to the 1920s, he said, which extends to the company store, where Yellow and Roadway hats and T-shirts still were sold.

“I like the focus he has,” said Jason Seidl, an analyst at Dahlman Rose & Co. “He is bringing the company back to basics.”

“He is making changes where it makes sense,” Seidl said, including selling non-core assets to raise some cash.

He praised the move to halt YRC Freight’s overnight LTL service, saying it “wasn’t a major player in the next-day market.”

Seidl cautioned, however, that from a culture standpoint, “the company can’t change overnight, especially one that is battered and bruised. It normally takes a few years.”

One of those who likes today’s new outlook is 100-year-old Jack Grey, a retired 32-year Yellow Freight driver, who attended a Jan. 17 meeting at Welch’s invitation, when YRC Freight’s new logo was unveiled.

A few days before, Grey had called the company and had spoken directly to Welch, telling him, “I don’t know what’s going on, but you have to fix it” (see story, this page).

Welch also makes no secret about his departure in 2007, when he was president of Yellow Transportation.

“I left with a very heavy heart,” said Welch, who in the interim worked at JHT Holdings, a hauler of new trucks, and Dynamex, a package delivery company. “I felt we were way off track as a company.”

“No matter how this company tried to diversify . . . this company was still 95% LTL,” he explained, but former management spent too much time focusing on non-core businesses, such as a Chinese acquisition, truckload and logistics subsidiaries.

Even the corporate language was wrong, he maintains.

“Freight was a dirty word,” he recounted. “The holding company [management] was saying, ‘Don’t use the word freight; we’re in transportation. Don’t say customer; use consumer.’ ”

“We’re going back to what we do best,” he said, painting a different picture of a company where the holding company was trimmed by cutting jobs, Roadway’s former headquarters in Akron, Ohio, which is being shut and sold.

In addition, non-LTL businesses have been or will be sold.