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YRC Third-Quarter Results Show Tale Of Two Units; National Holds Own While Regionals Suffer

FreightWaves

Less than truckload (LTL) carrier YRC Worldwide, Inc. (NASDAQ: YRCW) posted October 31 a 48 cents per share third quarter net loss, most of which came from an $11.2 million loss associated with the mid-September refinancing of a $600 million term loan.

Backing out the 34 cents per share net loss from that event, the per share loss of 14  cents was better than the 17 cents per share net loss expected from the handful of analysts polled by Barchart. 

The refinancing agreement extended the original July 2022 maturity date to June 2024, eliminated a 3% annual hit on principal amortization that the company said will save $18 million annually, and cut YRC's interest rate by 100 basis points.

On the operations side, it was a tale of two business units, with the YRC Freight long-haul LTL unit holding its own amid a weak macro environment, and the regional businesses – New Penn, Holland and Reddaway – struggling with weak volumes in the Midwest, a chunk of that due to the impact of the United Auto Workers' strike against General Motors Company, (NYSE: GM), which hurt Holland's volumes in the Midwest. 

The regional units have also not been able to adequately leverage the operating efficiencies built into the five-year collective bargaining agreement reached earlier this year with the Teamsters union, whereas the long-haul unit has, Darren Hawkins, YRC's CEO, said on the company's call with analysts. Hawkins said the benefits of the contract language for regionals was predicated on a top-line growth environment which has yet to materialize.

The regionals' pain was perhaps most keenly felt in the unit's operating ratio – the ratio of revenues to expenses. The unit's operating ratio spiked to 100.9% from 96.2% in the 2018 quarter. This meant that the unit was spending more than it was generating. By contrast, YRC Freight's operating ratio was 96.1% compared to 97.0% for the same period in 2018.

Operating income at the long-haul unit rose 28% to $31.6 million, the unit's best quarterly performance in 10 years, executives said.  By contrast, the regional units reported a $4.1 million operating loss, compared to an operating profit of $18.4 million in the 2018 quarter.

All told, operating revenue came in at $1.26 billion, compared to $1.30 billion in the year-earlier quarter. Operating income dropped to $23.8 million from $41.2 million. Both periods included net losses on disposals of property.

The third-quarter total net loss figure compared with $2.9 million net income in the third quarter of 2018, the company said. YRC generated $18.3 million less earnings before interest, taxes, depreciation and amortization (EBITDA) in the 2019 quarter than it did in the prior-year period.

Daily tonnage in the quarter fell 4% at YRC Freight, and 3.6% at the regional units. Daily shipments fell 3.5% at YRC Freight and 3.9% at the regional segment.

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