Why Oh YRC? Trucker's Guidance Cut is Yet Another Sign Consumer is Running Out of Gas

Includes: RTH, YRCW
by: William Trent, CFA

YRC recently updated its earnings guidance and it wasn't pretty.

The company now expects fourth quarter 2006 diluted earnings per share (”EPS”) to be in the range of $0.95 to $1.05 and full year 2006 earnings to be $5.00 to $5.10 per share. The company’s previous guidance was $1.40 to $1.50 per share for the fourth quarter and $5.45 to $5.55 per share for the year.

You’ll remember, of course, that the previous guidance had already been through a round of revisions. We warned investors in October to expect further cuts:

For the full year, YRC projects a profit of $5.45 to $5.55 per share on revenue of about $10 billion. In July the company had projected year earnings of $5.65 to $5.85 per share on revenue of $10 billion.

That is a $0.20 per share guidance reduction with just one quarter left in the year. Next year’s EPS could be $1.00 or more less than current estimates bake in. As we said before, trucks cost money even when they aren’t being used. As the economy slows, those companies like CH Robinson (NASDAQ:CHRW) and Landstar (NASDAQ:LSTR) that get their capacity from independent contractors on an as-needed basis have lower overhead expenses and remain profitable. If the economy slows much further, Yellow’s guidance reductions will be even larger.

So you can add this to the growing list of signs the consumer is out of gas.

Disclosure: author owns put options on FedEx