YRC Posts $86 Million 4Q Loss in as Costs Outpace Higher Rates, Tonnage

This story appears in the March 5 print edition of Transport Topics.

YRC Worldwide Inc.’s efforts to reduce ongoing losses stalled in the fourth quarter, despite higher tonnage and higher rates as costs rose more than revenue.

YRC’s fourth-quarter loss was $86.2 million, compared with a profit of $15.4 million in the 2010 quarter, which resulted from an income tax benefit of $87 million, the company said on Feb. 28. Excluding taxes, YRC lost $77.9 million in the fourth quarter and $66.2 million in the 2010 period.

Revenue rose 11%, or $120.7 million to $1.21 billion in the 2011 fourth quarter. However, costs rose $131.0 million to $1.25 billion, including higher expenses for fuel.

The performance at YRC, which lost a total of $682.2 million in 2010 and 2011, was in contrast to higher profits at most other less-than-truckload carriers. Among the carriers whose fourth-quarter earnings improved over 2010 were Con-way Freight, UPS Freight, ABF Freight, Roadrunner Transportation and Saia.

“The road back to profitability remains long,” Morgan Keegan &?Co. analyst Arthur Hatfield said in a report on Feb. 28, adding that YRC’s new management is continuing to make progress in turning the company around.

“We are making sequential progress,” CEO James Welch told Transport Topics on Feb. 28. “We are on the right track. This is a big ship; I have no illusions about getting things turned around in three to six months.”

At the national LTL carrier, operating performance slipped.

The fourth-quarter operating loss worsened to $26.7 million after an operating loss of $22.5 million in the 2010 period. The operating ratio lost ground, hitting 103.3 after a 103.1 mark in the final 2010 quarter.

Revenue, on the other hand, rose 11% to $804.5 million year-to-year.

That revenue increase was primarily the result of tonnage that rose 5.9%. Revenue per 100 pounds of freight, which reflects pricing changes, increased 4.8% to $23.03, far more slowly than other LTL carriers’ fourth-quarter performance.

For example, Arkansas Best Corp.’s ABF Freight System, another national LTL carrier, boosted pricing on that basis by 13%, and Con-way Freight, another major carrier, recorded an 8.3% increase.

The news was better at YRC’s regional business.

Operating income climbed to $6.9 million from $6.1 million, matching the 13% increase in revenue to $381.7 million.

As a result, the operating ratio remained at 98.2.

Tonnage grew 6.4%, and revenue per 100 pounds of freight rose 5.7% on a year-over-year basis, reaching $11.05 at the regional unit.

“While we would like to have seen more revenue per hundredweight improvement in the regional business, we were pleasantly surprised by the solid tonnage gains in both the national (now YRC Freight) and regional divisions,” Hatfield’s report said.

Welch said YRC’s current pace of rate increases is slower than competitors because its rivals still are restoring rate after “trying to put us out of business” by cutting rates.

YRC also said in a regulatory filing that it probably would have to go back to lenders to renegotiate the earning targets that were set for the second quarter. Those targets called for YRC to have made $210 million excluding taxes, interest, depreciation and amortization, or EBITDA, in the 12 months ending June 2012.

Welch told TT that those targets, which were set before he became CEO, “were not as realistic as they needed to be.”

While YRC’s results trailed the 2010 period, Welch said that the results weren’t exactly comparable because there were $7 million in payments to union pension plans in the fourth quarter that weren’t made in the 2010 period.

Welch also said YRC still plans to make a series of changes in YRC Freight’s operations in April that are intended to improve service and lower costs. He wouldn’t say how much those savings might be.

In addition, YRC disclosed that it received $18.5 million for assets of its Glen Moore truckload unit that were sold to Celadon Group.

The fourth-quarter results also included $26 million for losses related to disposal of assets and restructuring-related fees.