YRC trims Q1 net loss to $14.6 million as operating ratio hits 100

YRC Worldwide Inc., parent of the long-haul LTL carrier Yellow Freight and regional giants New Penn, Holland and Reddaway, continues to lose money even in the strongest fiscal environment for carriers in at least a decade.

Yet analysts were pleasantly surprised at the relatively smaller size of YRC’s loss. As analyst David Ross of Stifel Inc. put it in a note to investors: “We knew YRC was going to struggle through the ice and snow that pounded the Northeast and upper Midwest more than usual in 1Q18, but the company held it together and survived the beating, maybe even better than some expected.”

YRC reported consolidated operating revenue for first quarter of $1.215 billion and a consolidated operating loss of $4.3 million, which included a $3.2 million loss on property disposals. By comparison, YRC’s 2017 first quarter included operating revenue of $1.171 billion and $300,000 consolidated operating income, which included a $2.7 million loss on property disposals.

In the first quarter, usually the slowest period for most trucking companies, YRC posted a net loss of $14.6 million. But that was a $10.7 million improvement compared with its net loss of $25.3 million in first quarter 2017.

In a research note to investors, Stephens Inc. analyst Brad Delco called YRC’s performance “better-than-feared,” and said the results “highlight progress being made on the company’s internal initiatives.” Yield acceleration is improving, Delco noted, adding he thought YRC’s financial performance would improve as the year continues.

YRC posted adjusted earnings before interest, debt and taxes (EBITDA) of $45.7 million in first quarter 2018 compared to $43.2 million in the 2017 first quarter. YRC’s total debt-to-adjusted EBITDA ratio for first quarter 2018 was 3.32 times compared to 3.62 times for first quarter 2017.

YRC was hurt by purchased transportation expenses, which increased $20.9 million in first quarter 2018 compared to the same period last year. The increase was primarily due to a $16.2 million increase in third party costs for logistics solutions and rail purchased transportation from increases in rail rates and rail miles as nearly all carriers were caught in a capacity squeeze due to lack of drivers in many cases.

YRC said its purchased transportation results also included a $9.9 million increase in equipment lease expense of which $5.5 million was attributable to long-term leases in conjunction with the YRC’s strategy to reinvest in its fleet. These increases were partially offset by a $4 million decrease from reduced usage of local and over-the-road purchased transportation.

YRC continues increasing reinvestment in its business with $23.5 million in capital expenditures and new operating leases for revenue equipment with a capital value equivalent of $73.7 million. That’s a total of $97.2 million, which YRC said was equal to 8% of operating revenue for first quarter 2018.

That’s a $72.5 million increase over the $24.7 million investment in first quarter 2017, YRC said. The majority of the investment was in tractors, trailers and technology, the company said.

The downside was YRC’s consolidated operating ratio for first quarter 2018 of 100.4 compared to 100.0 in first quarter 2017. The operating ratio at YRC Freight was 100.9 compared to 101.0 for the same period in 2017. The Regional segment's first quarter 2018 operating ratio was 98.9 compared to 97.2 a year ago, the company said.

First quarter 2018 tonnage per day decreased 2.4% at YRC Freight and increased 0.2% at the Regional segment compared to first quarter 2017.

At YRC Freight, including fuel surcharge, first quarter 2018 revenue per hundredweight increased 6.0% and revenue per shipment increased 8.3% when compared to the same period in 2017.  Excluding fuel surcharge, revenue per hundredweight increased 4.4% and revenue per shipment increased 6.7%.

At the Regional segment, including fuel surcharge, first quarter 2018 revenue per hundredweight increased 5.3% and revenue per shipment increased 9.0% when compared to the same period in 2017. Excluding fuel surcharge, revenue per hundredweight increased 3.6% and revenue per shipment increased 7.3%.

Stephens’ Delco said those trends were positive in yield management and tonnage. YRC Freight reported yield (without fuel surcharges) of 4.4 percent, which accelerated from 2.6%, 2.3% and 1.1% in the three previous quarters.

In a negative note for shippers, YRC continues to post gains in contract renewals, Delco said. YRC Freight reported contract renewals running an average of 6.2% higher, while the Regionals reported 6 percent contract gains come renewal time.

“We are executing our strategy to secure the right price and freight mix in our networks while on-boarding a significant amount of revenue equipment in 2018,” YRC CEO Darren Hawkins said in a statement. “The first quarter results were in-line with our expectations and we continue to expect year-over-year financial improvement to be weighted to the second half of the year.”

Hawkins said pricing and demand environment “remain favorable” and in the first quarter 2018, YRC Freight and the Regional companies reported strong year-over-year increases in revenue per hundredweight and revenue per shipment.

While year-over-year tonnage per day was down for the quarter at YRC Freight, Hawkins said year-over-year monthly results improved sequentially during the quarter and turned positive in March.

“Replenishing our fleet is a priority and during the first quarter our capital expenditure equivalent investment was nearly four times as much compared to a year ago,” Hawkins added.

During the quarter, YRC companies took delivery of more than 500 tractors with approximately another 400 scheduled for delivery in 2018.  It also took delivery of more than 400 trailers with approximately another 2,100 expected to be delivered in 2018.

“As we integrate this equipment into our fleet, we expect it to help mitigate the use of short-term rentals,” concluded Hawkins.

All this was enough positive news for analyst Delco. He said YRC “offers an attractively valued, self-help/turnaround story.” He said YRC companies had “significant leverage” in the $36 billion LTL market place that he said continues to have “robust” fundamentals for carriers.