YRC’s $16 million loss in third quarter leads carriers’ late-year financial doldrums

A challenging third quarter freight environment pushed the parent company the largest unionized trucking company back searching for the road to sustained profitability.

YRC Worldwide, the holding company that represents the fourth-largest less-than-truckload (LTL) carrier and three top-25 smaller regional LTL units, was back into red ink despite ongoing efforts to streamline its network in what the company calls its “multi-year strategic roadmap” back to profitability.

After earning $2.9 million in the 2018 third quarter, YRC sustained a $16 million net loss in the most recent quarter. The quarterly loss was exacerbated by an $11.2 million loss on extinguishment of debt associated with a refinancing of the term loan agreement, which resulted in a negative impact of $0.34 cents per share for the third quarter 2019.

YRC reported consolidated operating revenue for third quarter 2019 of $1.257 billion and consolidated operating income of $23.8 million, which included a $1 million net loss on property disposals. By comparison in the third quarter 2018, YRC posted operating revenue of $1.304 billion and consolidated operating income of $41.2 million, which included a $1.9 million net loss on property disposals.

“In September, we announced the completion of the refinancing of our term loan, a critical next step in our multi-year strategy,” Darren Hawkins, CEO of YRC Worldwide, said in a statement. “We continue to increase our efforts with two of our five key strategic initiatives now complete.”

Key components of what YRC is calling its “multi-year strategic roadmap” are:

• Labor contract ratification, along with implementation of operational efficiencies to achieve service excellence;
• Capital structure improvement;
• Network optimization;
• Customer growth/engagement initiatives; and 
• Capital investment in equipment and technology

In the third quarter, YRC completed consolidation of its New Penn corporate office, formerly in Lebanon, Pa., to what the company called “scale processes.” It also completed a refinancing of a term loan. YRC has network optimization plans to consolidate service centers, with 12 completed so far and a total of approximately 25 service centers expected to be completed by end of the year.

“We are prioritizing our network optimization initiatives to bolster our longer-term profitability for the Company,” said Hawkins. “With the focus on greater efficiencies, we completed the consolidation of the New Penn corporate offices, as well as the consolidation of 12 service center facilities. The cost savings from lease terminations, sale of properties as well as more efficient asset utilization also contribute to our increased profitability of our best-in-class brands.”

Hawkins said YRC recently deployed a new operations field structure to ensure better customer service and increase operational efficiencies. 

“Our team remains focused on building density in the areas we service, while enhancing the customer experience and value proposition, and ensuring greater efficiency with our equipment, our facilities and our resources,” Hawkins added.

YRC Freight posted its  best third quarter operating income in over 10 years. That was helped by utilizing some of the operational efficiencies earned from its new contract with the Teamsters union, addition of box trucks, reduction of local purchase transportation as well as other cost control initiatives, Hawkins said.

Still, Hawkins called third quarter freight volumes “sluggish,” as the manufacturing economy in the nation continues to contract slightly.

Consolidated operating ratio for the third quarter 2019 was 98.1 compared to 96.8 in third quarter 2018. The operating ratio at YRC Freight was 96.1 compared to 97.0 for the same period in 2018. The Regional segment’s third quarter 2019 operating ratio was 100.9 compared to 96.2 a year ago.

 At YRC Freight, third quarter 2019 revenue per hundredweight, including fuel surcharge, increased 1.7% and LTL revenue per shipment increased 1.2% when compared to the same period in 2018.  Excluding fuel surcharge, LTL revenue per hundredweight increased 2.8% and LTL revenue per shipment increased 2.3%.

At the Regional segment, third quarter 2019 LTL revenue per hundredweight, including fuel surcharge, decreased 0.8% and LTL revenue per shipment decreased 0.4% when compared to the same period in 2018. Excluding fuel surcharge, LTL revenue per hundredweight was flat and LTL revenue per shipment increased 0.3%.

LTL tonnage per day decreased 4.0% at YRC Freight and decreased 3.6% at the Regional segment compared to third quarter 2018. Total shipments per day for the third quarter 2019 declined 3.5% at YRC Freight and 3.9% at the Regional segment, the company said.

“Concerning our regionals, operating results deteriorated due to depressed volume levels, which were particularly acute in the Midwest Rust Belt, along with the labor disruption in the automotive sector, where we have regional exposure and that did not help the last two weeks of the quarter,” Hawkins added in a conference call with analysts.

 He said YRC’s ability to leverage the operational flexibilities obtained from the new Teamsters contract for the regional companies has been hampered due to these “muted” volume levels, while labor costs have increased at all YRC units.

Hawkins added that YRC’s focus is on greater efficiencies throughout its networks. It has have completed 12 consolidations of service centers, and are on track to hit its goal of approximately 25 service centers to be consolidated by the end of the year. Then he hinted more of the same will be forthcoming in 2020.

“As I've mentioned, this just scratches the surface of the effort and we will continue to enhance our network through terminal consolidations for the next several quarters,” Hawkins added.

YRC’s plan for 2020 includes building density in its networks through optimization, reducing its service center footprints and enhancing service and on-time delivery standards to customers—a good trick for any operator.

Shippers are averaging 3% increases in their contract renewals, both at long-haul YRC Freight and the regionals, Hawkins said. YRC’s regionals were flat from a yield perspective, but that is coming off very strong comparables from last year, YRC officials said.

Of the 1,000 contract renewals in the third quarter, Hawkins said he would classify those renewals as “very stable” in the current pricing environment.

“When most of these big renewals that we're reporting out and you're dealing with 60,000 origin and destination pairs, as you price these. So, specifically with a New Penn footprint or Reddaway footprint or National footprint, there's lanes that we're targeting and going after that have a very solid contribution to our network,” Hawkins explained.

If it’s any minor consolation to YRC officials, they are not alone in the third quarter doldrums.

Old Dominion Freight Line, the perennial leader in LTL profitability and second-largest LTL carrier, suffered a 5.4% decline in quarterly net income to $164.1 million on a 0.9% decline in revenue to $1.048 billion, compared to year-ago quarterly profit of $173.4 million on $1.058 billion revenue.

Even so, ODFL posted an eye-popping 79.3 operating ratio, compared with a 78.4 OR in the 2018 third quarter.

“Old Dominion’s financial results for the third quarter of 2019 reflect the challenging operating environment,” Greg C. Gantt, President and Old Dominion Freight Line CEO said in a statement.

“The domestic economy remained sluggish during the quarter, and the general softness in demand contributed to our first quarter-over-quarter decline in revenue since the second quarter of 2016,” Gantt added. “While our tonnage declined as compared to the third quarter of 2018, we were pleased with the ongoing improvement in our yield.”

ArcBest, parent of ABF Freight System, the nation’s seventh-largest LTL company and YRC’s chief unionized long-haul competitor, posted revenue of $565.6 million om the quarter, a 4.1% declined compared to $585.3 million in the year-ago quarter.

Tonnage per day decreased by 4.6%, but ArcBest said a 10% decrease in LTL‑rated freight was partially offset by a double digit percentage increase in truckload‑rated freight. Total shipments per day decreased by 3.9%.

Total weight per shipment decreased 0.7 percent with a decrease in the average LTL‑rated weight per shipment of approximately 6 percent.Total billed revenue per hundredweight increased 1.5 percent.  Excluding fuel surcharge, the percentage increase on LTL‑rated freight was in the high‑single digits, ArcBest said

Its operating income was $31.7 million and an operating ratio of 94.4 percent compared to operating income of $50.2 million and an operating ratio of 91.4 percent in the year-ago quarter.

The same picture was painted on the truckload side. Knight-Swift, the nation’s largest TL carrier, reported $74.6 million net income on a 10% drop in revenue to $1.2 billion, compared with net income of $105.9 million on $1.2 billion revenue in the year-ago quarter.

Convenant Transportation, the nation’s 18th-largest TL, lost $3.2 million compared with net income of $11.6 million on an 8.4% drop in revenue of $222.9 million compared with $243.3 million revenue in the year-ago quarter.

Marten Transport, a reefer carrier, bucked the downward trend by reporting an 8.7% rise in net income to $16.6 million from $15.3 million in the year-ago quarter. That came on a 7.7% rise in revenue to a record $215 million compared with just under $200 million in the 2018 third quarter.