Thursday, November 15, 2012

With A New CEO And Revamped Board, Is YRC Worldwide Back On Track For A Turnaround?

James Welch

Can James Welch, the new CEO of one time transportation giant YRC Worldwide, succeed in  retooling and rehabilitating the company that was close to bankruptcy last year? The quick answer is yes, based on his less-than-a-year performance as helmsman of the ailing YRC.

With his extensive experience in the trucking industry, some investors believe that if there�s anybody who could pull the behemoth out of its dark hole, it would be Welch, a 33-year veteran in the transportation industry, including 29 years at YRC.

His years at YRC culminated in his being promoted to president and chief executive of YRC�s Yellow Transportation subsidiary in 2000. The unit posted record operating profits from 2004 to 2006.

Welch, however, quit in 2007 when he started to question the new direction that parent YRC was taking. �I disagreed with the new acquisitive strategy of the company, and I felt the acquisitions it was pursuing were ill-timed and were bad moves,� says Welch. The acquisitions, he noted, boosted the company�s debt level to $1.3 billion. So at age 52, Welch quit YRC and retired.

That lasted until July 22, 2011, when he accepted a newly reconstituted YRC board�s offer for him to come back and become the new CEO of the restructured company, replacing Bill Zollars, who was largely responsible for the company�s steady decline and ill-fated moves to expand the company through aggressive acquisitions.

Welch quickly proceeded to streamline the company, including reducing to three the number of senior executives in the YRC headquarters, and the sale of unprofitable assets, including its facilities and operations in China. U.S. companies don�t usually run away from China, but Welch says its business in that country had been a disaster, although it was just a relatively  modest operation. �We lost money in China, which really didn�t complement our global operations,� says Welch.

As part of a financial restructuring at YRC, Welch got an infusion of $100 million in new capital by issuing new convertible notes, and exchanged part of YRC�s outstanding loans and other obligations for new securities, including equity.

Analysts saw the financial changes an important fresh sign of improvement. �YRC�s balance-sheet restructuring in 2011 improved the company�s liquidity,� says Thomas R. Wadewitz, transportation analyst at J.P. Morgan.

Unless a sharp economic downturn occurs, he says YRC �will likely remain a significant player in the less-than-truckload market for some time.� He believes YRC�s freight business has �achieved solid improvement in service since mid-2011, moving from an on-time delivery ratio of 87.3% to a mid-90% ratio today.�

YRC�s results in the fourth quarter of 2011 showed year-over-year improvement, notes Wadewitz, with an adjusted operating ratio in its Freight national segment of 102.5% and an adjusted operating ratio in its regional segment of 98.1.

Although he does not see YRC making a profit this year or in 2013, Wadewitz, who rates the stock as neutral, says an alternative way to value the stock is on the basis enterprise value/EBITDA. The stock plunged 98% in the past 12 months, trading at $6.32 a share on Apr. 13, 2012.

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