Is YRC Worldwide On The Brink Of A Turnaround?

May.29.13 | About: YRC Worldwide, (YRCW)

On May 3, YRC Worldwide, Inc. (NASDAQ:YRCW) surprised markets when it reported financial results that far surpassed analysts' expectations for 2013's first quarter. The question that's now on everyone's minds is whether or not this transportation Goliath is going to continue its upward progress in the coming quarters and in the future ahead.

In its first quarter ending on March 31, 2013, the company's consolidated operating revenue was 1.162 billion, 2.7% lower than the 1.194 billion, which was reported during 2012's first quarter, however the company's consolidated operating income increased from a loss of 48.8 million to income of 9.9 million, a dramatic 58.7 million dollar increase. This marked its first quarter of positive operating income in over six years. Over the recent years YRC Worldwide, Inc. has undergone two corporate restructurings taken in an effort to prevent the company from going bankrupt, and after its fourth consecutive quarter with operating profits, it appears as though its efforts have been paying off.

Prior to the entrance of the new CEO, one of YRC's most prominent problems was its inability to cut unnecessary costs and make itself more effective as well as solvent. Transportation industry verteran and the new CEO, James L. Welch, has been aggressively taking actions to reconfigure YRC Worldwide so as to make its business model profitable. Welch has shifted the company's focus to cutting costs rather than gaining new contracts. In a phone call with analysts Welch stated that the company would be cutting over 250 jobs from YRC's union employees, shutting down terminals, and reducing the overall amount of miles driven. In addition he stated that relationships with the union are the best they have been during his tenure as CEO. In Achieving these goals YRC Worldwide will streamline its business and effectively cut costs. By cutting costs YRC Worldwide will further increase its overall operating revenue.

At the end of 2012, YRC's revenues approached $5 billion, which is about 30x its current market cap of $167million. With a market capitalization of $167million, YRCW currently has an enterprise value of 1.36 billion dollars. With the first quarter's growth rate repeated YRCW's stock should trade at around $150 a share. In addition the ATA's (American Trucking Association) tonnage index is up 4% year over year and for the overall month of April is 4.3% higher than last year. The ATA compiles its monthly index by surveying its carrier members on the amount of tonnage they've hauled within each month of the year. Subsequently this increase in the tonnage index could push YRC's overall revenue up dramatically in its next earnings report on July 29.

The company climbed to new highs on May 7, when groups such as BB&T and Thomson Reuters shifted their ratings for the company from that of an underweight position to that of a strong hold and from a negative rating to a neutral rating respectively. Recent surges in the company's stock have also been assisted by the recent bullish market, which has lowered the short interest on the stock by forcing traders to cover their losses. That being said, the stock is currently undergoing a pullback after reaching its 52-week high on May 21, making it a good time to perhaps take a position in the company, before it can resume an upward trend. With the interest rates on its debt remaining low and unions working constructively with management, a bright future could potentially lie ahead for YRCW in coming months.

This Article Was written with Justin Galloway

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in YRCW over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.