LITTLE ROCK — A bankruptcy filing for truck holding company YRC Worldwide Inc. hasn’t been ruled out by some transportation analysts.
Other industry watchers are hopeful that the specialized carrier with the largest less-than-truckload network in North America will be able to turn a consistent profit because of financing and leadership changes made this summer.
Less-than-truckload carriers haul shipments that combine freight from multiple customers in each trailer.
In July, the Overland Park, Kan.-based business that competes head-to-head against Fort Smith-based Arkansas Best Corp. began a financial restructuring plan that increased its debt load to $1.4 billion.
The possibility of YRC acquiring even more debt hasn’t been ruled out either, as reported in the holding company’s most recent quarterly filing with the U.S. Securities and Exchange Commission.
The new bonded debt and related stock issuance that whittled control of its current stock owners to 2.5 percent of the company has deteriorated YRC’s stock price.
Shares have lost 80 percent of their value in the last six weeks, triggering a second stock-delisting notification from the Nasdaq exchange. The exchange’s rules require notification if a stock’s price remains below $1 per share during a 30-day period.
On Friday, YRC Worldwide closed at 6 cents a share. The stock has sold for as low as 5 cents a share and as high as $8.25 over the past year.
And if all that weren’t challenging enough, the business employing one of the largest union-represented work forces in its industry also faces a more than $750 million legal threat from ABF Freight System Inc. The 3,600-truck operator owned by Arkansas Best Corp. also employs unionized work force and wants a lower cost structure similar to what YRC has in place.
“The potential of a bankruptcy should always be in the back of investors’ minds with Yellow,” Jack Waldo, a transportation analyst with Stephens Inc. in Little Rock said Thursday , referring to the name of YRC’s founding corporate predecessor. And “the likelihood will escalate the worse the economy gets.”
Investors counseled by Stephens are advised to stay on the sidelines when it comes to buying YRC Worldwide stock, he said.
The financial restructuring extends YRC Worldwide a lifeline for a period of time, Waldo said. The company’s survival is linked to its operating performance and “the macroeconomic environment creates a healthy amount of doubt about the company’s ability to return to a consistent profit.”
YRC Worldwide declined to comment on its ability to generate a profit and the pending lawsuit with ABF.
The issuance of YRC’s debt and equity in July triggered the first delisting notification from Nasdaq.
YRC, which operates throughout the United States, Canada and in China, last reported a profit in the fourth quarter. Some financial analysts have said the profit came from a one-time gain on debt redemption. in 2010
YRC Worldwide, which is one of the trucking industry’s largest carriers, was on the verge of bankruptcy in 2009. The difficulties came in the wake of acquisitions in 2005 and 2003 which cemented its position as the largest carrier in its field. The carrier operates about 26,600 trucks.
“We’ve done exactly what we set out to do two years ago: YRC Worldwide and our brands are positioned for long-term success,” the company said earlier this year, in a news release announcing the restructuring.
James L. Welch, a former Yellow executive, has returned to business as chief executive officer, and transportation consultants such as Satish Jindel of SJ Consulting in Pittsburgh say Welch already knows the company’s strengths and weaknesses.
“He’s a people person,” said Jindel, and “if he can get every driver to bleed Yellow, the company will have shareholders coming and knocking on its door saying, ‘I want to invest.’”
The broader economic recovery, however, will be the company’s biggest hurdle to overcome.
Freight tonnage data from the American Trucking Associations this year has shown single-digit growth in the yearover-year comparison. And fleet sizes in the $27.5 billion less-than-truckload industry have contracted on the average of 20 percent since 2007, when the recession began.
Analysts such as Waldo don’t discount the threat posed by ABF Freight System, which was handed a victory by the U.S. Court of Appeals for the Eighth Circuit in July.
Rejection of a lower court’s case dismissal has restarted the litigation on the matter of YRC’s labor contract.
Both companies participate in what’s called the National Master Freight Agreement that’s negotiated with the International Brotherhood of Teamsters. YRC workers have given certain concessions that have lowered the carrier’s cost structure. ABF has said the moves were made in violation of the labor agreement.
“And there’s a lot of validity to its claim,” Waldo said, mentioning forgone pension payments.
Brad Raymond, an attorney representing the Teamsters in the ABF Freight System case, on Thursday declined to comment on the case.
But, he was optimistic that the new management will be able to turn things around, “and I understand the business, in general, is doing much better than it has been.”
Business, Pages 67 on 09/25/2011