Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

YRC Worldwide (NASDAQ:YRCW)

Q2 2014 Earnings Call

July 31, 2014 4:30 pm ET

Executives

Stephanie D. Fisher - Vice President and Controller

James L. Welch - Chief Executive Officer and Director

James G. Pierson - Chief Financial Officer and Executive Vice President

Darren D. Hawkins - President of YRC Freight

Analysts

David G. Ross - Stifel, Nicolaus & Company, Incorporated, Research Division

Scott H. Group - Wolfe Research, LLC

Robert H. Salmon - Deutsche Bank AG, Research Division

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Operator

Good afternoon. My name is Pete, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the YRCW second quarter earnings call. [Operator Instructions] Thank you. Stephanie Fisher, Vice President and Controller of YRC Worldwide, you may begin your conference call.

Stephanie D. Fisher

Thank you, Pete, and good afternoon. Thank you for joining us for the YRC Worldwide second quarter 2014 earnings call. James Welch, Chief Executive Officer of YRC Worldwide; Jamie Pierson, CFO of YRC Worldwide; and Darren Hawkins, President of YRC Freight, will provide comments this afternoon. James, Jamie and Darren will be available to answer questions following our comments.

Now for our disclaimers. During this call, we may make some forward-looking statements within the meaning of federal securities laws. These forward-looking statements and all other statements that might be made on this call which are not historical facts are subject to uncertainty and a number of risks, and thus, actual results may differ materially.

These include statements regarding the company's expectations, assumptions of future events and intentions or strategies regarding the future.

The format of this call does not allow us to fully discuss all of these risk factors. For a full discussion of the risk factors that could cause the results to differ, please refer to this afternoon's earnings release and our most recent SEC filings, including our Forms 10-K and 10-Q.

Additionally, please see today's release for a reconciliation of operating income and loss to adjusted EBITDA and the reconciliation of adjusted EBITDA to net cash flow from operating activities and adjusted free cash flow deficit.

During this call, we may refer to the non-GAAP measure of adjusted EBITDA simply as EBITDA.

I'll now turn the call over to James to provide comments on our second quarter results.

James L. Welch

Thank you, Stephanie. I will make just a few comments and then turn the call over to Jamie for his financial update. We also have with us today Darren Hawkins on the call, and he will be here to discuss YRC Freight's performance and priorities, since they are such a key piece of YRCW.

Our second quarter results reflect progress from the disruptions we experienced in the first quarter during MOU negotiations, refinance activities and severe winter storms. The most encouraging element of our second quarter results was the renewed confidence our customers showed in YRC Freight, Holland, Reddaway and New Penn by rewarding us with shipment, tonnage and revenue growth at each operating company.

There's no doubt the overall freight environment was strong as well during in the second quarter as capacity tightened. We know we lost pricing momentum during late 2013 and early 2014, so it is encouraging to see the improvement that we've made as the year has progressed, including the second quarter. And more importantly, pricing improvements have continued in July, as well.

On a year-over-year basis, we also know that we've trailed the industry. But sequentially, we're right in the pack, as our customer-negotiated increases are as strong as I've seen in several years.

Overall, I'm relatively satisfied with our regional carriers' execution in the second quarter. Holland, Redd and the New Penn are showing solid results in 2014, although their performance in the second quarter was impacted by higher-than-anticipated short-term revenue equipment rental expenses due to volume increases and then work comp and BIPD headwinds coming out of the first quarter.

Our Regionals segment has good volume and yield momentum, and I believe that they will have a positive second half of 2014.

At YRC Freight, the operating results were a blend of both positive and negative results. As I stated earlier, it was encouraging to see shipments, tonnage and revenue grow over the same period in 2013.

Another favorable sign for YRC Freight was that after 3 quarters of year-over-year declines, it was able to increase yield and revenue per shipment. However, in order to keep the network fluid, purchased transportation was utilized more than planned and at higher cost levels than we expected.

YRC Freight also had a significant increase in BIPD and cargo claims expense as compared to the second quarter of 2013. Darren will provide more color on the priorities he has put in motion to drive and improve results at YRC Freight.

On a consolidated basis, the increase in BIPD and cargo claims expense obviously negatively impacted our bottom line. While we have not backed off on our efforts to be the safest carrier on the road, we nevertheless incurred negative development, mostly from prior year claims.

Our EBITDA results of $63 million and operating income of $20 million were less than planned. But based on our current trends, the second half of 2014 showed improve -- should produce improved results.

The freight environment we're currently operating in and the capacity issues that are showing up within the industry are creating some challenges, as well as opportunities for carriers. At YRCW, we think there is an opportunity to show pricing strength at all 4 of our operating companies, which, in turn, should help drive improved profitability.

I can assure that we are not standing still. Our operating company presidents have a firm grip on what needs to occur at their respective companies, and I have a lot of confidence in their abilities. And I believe our results will reflect our hard work in the second half of 2014 and beyond.

With that, I'll turn the call over to Jamie for his comments.

James G. Pierson

Thanks, James, and good afternoon, everyone. For the second quarter of 2014, we reported consolidated adjusted EBITDA of $63 million, which is a decrease from the $74.1 million we reported in Q2 '13. The decrease is primarily attributable to the YRC Freight network not being fully in cycle, which resulted in decreased productivity, rehandling of freight and less-than-optimal use of purchased transportation.

Additionally, we experienced a $15.5 million year-over-year increase in expense related to BIPD and cargo claims. The increase in BIPD expense was driven by an increase in a number of outstanding claims, as well as unfavorable development of prior year claims. The increase in cargo claims was due to increased frequency and severity.

Now for the year-over-year second quarter stats. YRC Freight's tonnage per day was up 5.9%, and regional tonnage per day was up 6.7%. YRC Freight's revenue per shipment was up 1.2%, which included an increase of 0.2% in revenue per hundredweight and an increase in its weight per shipment of 1%.

While the regional carriers increased their revenue per shipment by 3.2%, their weight per shipment increased by 0.6%, which in turn caused revenue per hundredweight to increase by 2.5%.

Moving on to earnings. On a consolidated basis, YRC Worldwide reported revenue of $1.3 billion for 2Q '14, an increase of $75 million over 2Q '13 from top line revenue growth at both YRC Freight and the regional carriers due to tonnage and rate increases previously mentioned.

Additionally, we reported consolidated income of $20 million for 2Q '14, which included a $6.5 million gain on asset disposals and was an increase of $5.7 million when compared to 2Q '13.

Finally, as I stated earlier, we reported adjusted EBITDA for 2Q '14 of $63 million versus $74.1 million in 2Q '13.

On a segment basis, for the second quarter of 2014, YRC Freight reported an operating loss of $300,000, an improvement of $8.2 million over the prior year, which translates into an operating ratio of 100, an improvement of 110 basis points versus 2Q '13.

Further, Freight reported adjusted EBITDA of $21.5 million, an $8.5 million decrease from the second quarter of 2013, primarily due to additional purchased transportation needed to balance the network, lower productivity levels and unfavorable development of prior year BIPD claims.

Our Regionals segment reported operating income of $23.2 million, a decrease of $2 million over 2Q '13, and an operating ratio of 95.1. Additionally, the segment reported adjusted EBITDA of $42.1 million, which was a slight decrease of $400,000 over the second quarter of 2013, driven by an increase in purchased local cartage and short-term revenue rentals to handle increased shipments, as well as unfavorable development of prior year BIPD claims.

Turning to cash flows and liquidity. From the end of the first quarter of 2014, our balance sheet cash and ABL availability under our ABL facility increased by approximately $30 million in 2Q '14 from $223 million to $253 million.

Additionally, our cash and cash equivalent and amounts able to be drawn under our ABL facility increased approximately $26 million from $183 million to $209 million.

Our ability to maintain liquidity at this level is due to continued active management of our balance sheet and working capital and the current seasonality of the business cycle.

In closing, our second quarter results are not what we wanted them to be, but I'm encouraged with both the volume and the rate increases we are seeing. Moving forward, it's about converting that additional revenue to the bottom line.

Now I'll turn the call over to Darren to discuss what he is doing at YRC Freight to capture that additional revenue.

Darren D. Hawkins

Thanks, Jamie. The YRC Freight network provides the LTL marketplace with the longest length of haul in the industry. In the second quarter of this year, each shipment traveled an average of over 1,250 miles in our network.

The service cycle, which is how we manage the pace of our network to protect transit times [indiscernible] quarter to ensure our customers receive the reliability they expect.

During the second quarter, the large transfer distribution centers experienced inefficiencies that negatively impacted our productivities, resulting in higher cost and rehandling of shipments.

The second quarter investment in our service and getting the network back in-cycle also included utilizing road and rail purchased transportation in lanes that we normally would avoid due to the high cost of those lanes.

Quite frankly, we struggled throughout much of the second quarter to keep our network fluid, and this resulted in higher costs than we would have liked.

When I assumed my current role in March of this year, I put in place an organizational structure that places more authority closer to where the work is being done and the revenue is generated than previously existed.

Our division vice presidents now have responsibility for both sales and operations and are the primary owners of the service cycle compliance within our company, with a heavy focus on our large transfer distribution centers.

While we did not perform right out of the gate in our second quarter like I had planned, I still firmly believe the structure we have put in place is the right answer moving forward.

As evidence of this, the field organization has made positive strides the last few weeks from an operational performance standpoint, particularly since the 4th of July holiday. Our network has stayed in-cycle since that time, largely due to the focus on our distribution centers' utilization of part-time employees to handle our freight volumes.

We're not satisfied to just be in-cycle on our current business. This economy is giving us the opportunity to grow the right revenue quality, which is why we're converting 3 of our current terminals to distribution centers in August.

These conversions will allow us to handle our freight more efficiently and provide more flexibility in the network as our business levels grow. This is an addition to the 3 new end-of-the-line terminals we opened in the second quarter this year, which are now fully operational. These openings and closings are a normal part of our business as freight volumes expand, contract or change from a flow standpoint.

Driver recruitment efforts remain a priority. We now have a team of in-house recruiters to target our driver needs. We are also operating a company driving school and have a joint driving school venture with the Teamsters local union in Indianapolis.

Additionally, I think it's important for me to make some specific comments about how we are aggressively approaching pricing increases. First, our scheduled contract rate negotiations in June and July yielded attainments well above historical norms.

Second, we are successfully achieving out-of-cycle contractual rate increases for large, lower-margin customers.

Third, we have targeted specific segments of our business for pricing increases in lanes that are not profitable or are over capacity.

And finally, our 3PL pricing increases have produced good results.

Customer confidence in YRC Freight is evident, as our contractual rate negotiations are yielding positive percentage attainments. I'm pleased with sales, marketing and pricing trajectory of our team. The revenue pipeline remains sturdy, and our gatekeeping effort to improve revenue quality on new business is benefiting our overall mix and targeted lane volume.

We also continue to invest in the areas that will help drive YRC Freight forward. The following are just a few of the investments we made during the second quarter and some additional investments we started for the remainder of 2014.

First, in March, over-the-road purchased transportation started from scratch, with cost levels improving every month since then as we ramp up our ability to utilize this service in the right lanes. Today, we are currently running over 600 PT schedules per week, and this is a significant component of our linehaul network.

Secondly, in May, we rolled out a new CRM tool, resulting in customer, sales and revenue management information being linked together.

And in July, we launched a redesigned website that, beginning in August, will also include industry-leading dimension-based web quoting functionality with no login required.

As of today, we have installed 18 of 40 planned dimensioners at YRC Freight, 13 of which were installed in the second quarter. We are on track to have all 40 installed by the end of the year.

Finally, we are actively exploring in-cab technology that is intended to assist us in avoiding accidents before they happen and reducing our BIPD claims expense.

Our success in the second half of 2014 will not be defined by the trucks, trailers or terminals, but by the 20,000-plus professionals that make up the foundation of our service performance and drive our Confidence Delivered brand promise.

I'd like to close with welcoming 89 additional YRC Freight drivers who have surpassed 1 million or more consecutive accident-free miles and joined our Circle of Champions this quarter. This club now has over 2,400 drivers in it.

With these comments, we are ready to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of David Ross from Stifel.

David G. Ross - Stifel, Nicolaus & Company, Incorporated, Research Division

I guess, can we talk first about the rate increases? Darren, you mentioned that they're tracking well above historical norms. Could you put any numbers around that in terms of the contract rates you're seeing coming up in July or at the end of the second quarter, what you're getting on the increases?

Darren D. Hawkins

David, this is Darren. And no, I won't put any numbers around it. But I will tell you that we're over 65% complete for the year, and our annual numbers are also tracking above with this addition in June and July. So what we're seeing is encouraging, especially with the later start that we've got compared to our competition with some of the noise we had in Q4 and Q1 of this year that hampered our efforts somewhat.

David G. Ross - Stifel, Nicolaus & Company, Incorporated, Research Division

And then the length of haul at YRC Freight, you mentioned it was a little over 1,250 miles. Was that a significant change year-over-year?

Darren D. Hawkins

It was a 17-mile change.

David G. Ross - Stifel, Nicolaus & Company, Incorporated, Research Division

Higher or lower?

Darren D. Hawkins

Lower.

David G. Ross - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And then, when you look at the equipment side of the company, YRC Freight versus regional, do they have about the same average age of tractor? Or do Regionals have a younger order fleet than the Freight division?

James G. Pierson

David, it's Jamie. I'd say, on the balance, they're pretty similar across the 2 segments.

David G. Ross - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And then on the equipment side, as well, you mentioned some rentals. Obviously, you had some leases coming in for the new equipment, but there were some rentals in the quarter. Could you explain why the need for the rentals? Is that typical?

James L. Welch

Dave, this is James. The short-term rental expense that we incurred is primarily at one of our subsidiaries in the Regionals segment. So obviously, volumes were pretty strong there, and that's where we incurred that expense. Obviously, we have our longer-term leases at all 4 companies. But we just got hit with short-term runs at one particular company.

David G. Ross - Stifel, Nicolaus & Company, Incorporated, Research Division

Was that due to a competitor failure in that region?

James L. Welch

Not -- it was due to a multitude of factors.

Operator

Your next question comes from Scott Group of Wolfe Research.

Scott H. Group - Wolfe Research, LLC

So the big picture here is we're supposed to be in this fantastic LTL environment, and 3 of the 5 LTLs have missed expectations. And I think that the message we're hearing is there's a lot of volume and we're struggling initially to handle the volume. So how quickly do you think that these issues of purchased transportation and renting trucks, how quickly can you fix that? Is this something that takes a quarter to fix, and we should start to see improvement again in the third quarter? Or could this take several quarters to cycle through?

James L. Welch

Good question, Scott. This is James. Let me make a couple of comments and then let Darren jump in. Certainly, we've made a lot of progress in the second quarter with the staying in-cyle project that we put in place of YRC Freight last fall. And as the quarter unfolded, we're seeing some nice progress there. And certainly, we're running much better this month than we have in the past. At the Regionals, I think the volume has moderated a bit. But primarily, that's been because we've taken more severe pricing actions. So it's really kind of hard to get your head around are we seeing some moderation because of the economy or because of the pricing actions that we're taking. But so far, we're still running levels that are very satisfactory to us. And we're trying to keep that cost and yield equation intact, and we're pretty happy with where we're at with our balance right now. Darren, I don't know if you want to jump in with any specific comments about YRC Freight.

Darren D. Hawkins

Yes, absolutely. Scott, this is Darren. First thing I'll mention is we did open 3 terminals in 2Q and also have 3 additional distribution centers opening in August. So that will certainly provide the valves in our network to continue our consistency around our service cycle as volumes increase. The second, I would like to talk about purchased transportation just a minute on the road and rail side, as in Q2, the negative impact that I mentioned in my opening comments really came from utilizing those services in lanes we wouldn't normally choose to use them in. Because of bottlenecks in certain parts of the country, we engaged the rail and road purchased transportation in lanes that are not the most favorable for us. We were able to stop doing that after the of July 4 weekend and have seen the purchased transportation on the road side start contributing like we planned for it to. And those 600 schedules that I mentioned from the previous week, those are all contributing in lanes that are positive from a cost standpoint. So that's very exciting for us for the third quarter.

Scott H. Group - Wolfe Research, LLC

So do you think that -- I mean, typically, I think, we see third quarter margins a little bit worse than the second quarter just seasonally. Do you think that the things that you're implementing can offset that and you can see some margin improvement or EBITDA improvement from 2Q to 3Q?

James G. Pierson

Scott, it's Jamie here. Obviously, we don't give guidance. But I'll tell you that coming out of the second quarter, it certainly did not meet our expectations. So I wouldn't look at it so much as sequentially in the historic norms as much as about what we're doing to rectify, as Darren said, kind of our shortcomings in the second quarter and expect the third quarter to be more normal than, certainly, the second quarter was. But we don't give guidance in terms of margin or dollars.

Scott H. Group - Wolfe Research, LLC

Okay. And then just last one for you, Jamie. The leverage covenants get a little bit tougher going forward. Are you comfortable, given the results, that you can meet those? Or do you feel like you may need to go back to the banks and redo some things?

James G. Pierson

Yes. The one thing, Scott, that I don't think most people are aware of is the internal process that we go through every single month in this company. Very arduous on the operating companies, but we update our forecast every single month and roll it forward. So as we sit here right now, we do have the cushion that we need to continue to operate the company, and we reevaluate that every single month, every 30 days.

Operator

[Operator Instructions] Your next question comes from the line of Rob Salmon from Deutsche Bank.

Robert H. Salmon - Deutsche Bank AG, Research Division

I guess, to follow up with Scott's question, as we're thinking about the costs associated with the network being out of service in Q2, can you give us a sense of the incremental expenses that you guys incurred on the PT, as well as some of the linehaul costs when we think about the performance this past quarter?

James L. Welch

This is James. I'll make a couple of comments and let Darren jump in. But there are all kinds of PT. There's cartage PT, there's over-the-road PT, there's rail PT. And there's good PT and there's bad PT. So we won't give any specific numbers on the costs associated with it, but suffice it to say, reflecting back on Darren's earlier comment that we did have some bad PT, both in rail and over-the-road in order to keep the network fluid. And we know that, that certainly was not a positive for our cost situation. But Darren, I'll let you make any other comments you want to make there.

Darren D. Hawkins

Rob, this is Darren. I will throw in -- James covered the PT well. I will throw in that we had a higher trend of hiring in Q2. We brought on 600 part-time dockworkers in Q2, and then I had to train all those and get them up to speed. So there was certainly expense there in my dock bills per hour, which was certainly one of the contributing factors when I mentioned the inefficiencies.

Robert H. Salmon - Deutsche Bank AG, Research Division

Okay, that's helpful. I guess, shifting gears, Jamie, you had called out BIPD and cargo claims as 2 headwinds. How should we be thinking about those line items as we look to the back half of the year? Will that elevate the expense continuing to flow through? Or are there opportunities for that to come down in the second half?

James G. Pierson

Rob, difficult to say. The reason I say that is a lot of our expense -- and it's not just YRCW, it's the industry expense is calculated on an actuarial basis. And that is to say that they try to estimate what claims that have already been filed are going to cost us in the future. And what -- the incremental expense for us in the quarter actually had to do with claims that were already filed that developed negatively against us. That is supposed to be trued up every quarter, as it was for us this quarter. So if the actuaries did it right, it should remain flat. Now no one can tell the future, especially in terms of the amount of reserves that we have posted against those claims. But as we sit here right now, I wouldn't foresee any substantial headwinds. But we won't know that until the quarter continues to develop and we get some more information back from the actuaries.

Robert H. Salmon - Deutsche Bank AG, Research Division

Okay. I guess a final one before I shift it over, and I'm not sure if this should go to Jamie or to Darren. When I'm thinking about the service center openings and the new distribution centers that have been coming online, are there any startup costs that we should be modeling in for the third quarter associated with those?

Darren D. Hawkins

Rob, this is Darren, and no, there's no startup cost.

Operator

Your next question comes from the line of Tom Albrecht with BB&T.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

I wanted to start with regional. I think this is the third quarter in the last 4 where the OR has actually deteriorated year-over-year. And I kind of look at regional as still needing some work but not in the turnaround stages that Freight is and probably more able to take advantage of what Scott said is a really strong LTL market. Why has regional not been able to kind of break beyond the 95-ish type of OR?

James L. Welch

Tom, this is James. I'll make a couple of comments and let Jamie jump in there as well. But certainly, the short-term rental expenses that we've incurred have hurt us on the Regionals segment. And then BIPD and cargo claims certainly have not been our friend, as well. And then I don't think we came out of the MOU refinance time frame with as much aggression as we should have at the Regionals with rate increases, but we certainly have rectified that and have moved forward to break into the second quarter with continued momentum into July. But those are a couple of my comments. So fundamentally, the companies are running good. Their service product is good. There's a lot of opportunity for improvement as we move forward. But Jamie, I'll throw it over to you for a couple of comments.

James G. Pierson

I think James nailed it. It is the short-term rentals when we take on the incremental volume, especially above and beyond what we've forecasted. Now we're going to continue to enter into operating leases there. So we've talked about the headwind that, that's going to create. But what we're talking about here more in the short term are the day and the week leases that literally cost twice as much as the long-term operating leases. So the more volume we have, the more short-term leases we enter into, that's going to actually create a little headwind. And everybody knows, who's on this call, the amount of backlog there is for equipment deliveries. So we do have some orders in. We're waiting to get those. And as soon as we get those in, that short-term rental expense should decrease somewhat. Now on the BIPD side, as I was talking about when I was trying to answer Rob's question, that's a quarter-to-quarter adjustment. Again, not expecting that to be a tremendous headwind going forward. Absent the short term, the day and the week leases, and absent the BIPD, I think we would have broken through that 95.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Okay. And then, Darren, I know you expressed a lot of optimism on pricing. And I think you, in particular, tried to give us a focus on what's happening in June and July. But when I look at just the reported, and I say reported yields because that doesn't capture all the mix changes, they're still really modest year-over-year. And even when I look at them sequentially, the increases are less than 2%. So, I mean, what gives you optimism that you're going to be able to get to a point where when we see some reported numbers, we might be looking at 4%, 4.5% types of numbers?

Darren D. Hawkins

Tom, this is Darren. And great question. I know you've been watching LTL and this company for a long time. And my optimism comes from -- the full impact of price aggression certainly takes some time. It gets to a rolling start, and then it certainly gains ground quickly when that happens. And that's exactly what I'm seeing at YRC Freight. And certainly, I've been in this industry a long time and watched several highs and lows. And when I mention that the increases that we're getting are above the norms, that's above the norms that I've seen for a long period of time. And I would also say that I'm very encouraged by the amount of revenue we're attaining from those increases, that the business is not being churned out. It's staying with us after those increases. So that gives me confidence. And certainly, I've had the view of July. So I'm strong on that segment for YRC Freight.

James L. Welch

Tom, this is James. The only thing I'll add to Darren's comments is that, as he has put the pressure on the pricing side, churn has hung in there pretty good and, historically, has come back over times when there's been a little more price aggression. It might churn out a little more business than normal, but I think Darren is pretty satisfied with what he is seeing on the trend factors. So that bodes well for us.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Yes. So back to Jamie for a minute. When you talked about some of the different reserves, whether it's BIPD or cargo or workers' comp, I think this is the fourth quarter in a row where you singled out items between the 2 companies. So how much of what is occurring is relatively recent inside of a year versus still some longer-term legacy claims?

James G. Pierson

It's very volatile, Tom. It's -- if you want to talk about BIPD, work comp and cargo, those 3 individually, you really have to completely separate them. So I wouldn't treat them as a single piece. We actually do call them out individually. On the BIPDs, I'm talking about current versus legacy. Clearly, this quarter, it was legacy claims, things that were not filed in the quarter that are 1 quarter to 1 year, maybe 2 years old. BIPD claims do not have the age that work comp claims do. So they don't develop as long. But given the size of those claims, they can certainly have a greater magnitude impact on the company. Work comp wasn't as much of a factor this quarter as it has been in the last quarter or 2. So safety in terms of hours between injuries and miles between accidents, I wouldn't say it was meaningfully different this quarter. It certainly kind of plateaued. And I think that has more to do coming out of the noise that we had in the fourth quarter going into the MOU negotiation. And the first quarter certainly had the -- basically the failed vote, plus then the revote, created some noise, and then the weather. So there was certainly some negative direction there first quarter. Second quarter was not as bad as I think as most people would think. And then on the cargo claims, a significant piece of that exposure or the increase this quarter had to do with the spike in volume and the rehandling of that freight as our network got out-of-cycle.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Okay. Where do you stand, maybe, Darren, on the target of getting the 6% of your miles being handled by outsourced parties? You mentioned the 600 PT schedules right now. But as a percentage of miles, approximately where are you?

Darren D. Hawkins

Tom, this is Darren. And what you're referring to there is the road portion of our purchased transportation agreement from our recently approved MOU. And we are tracking right at that number. So we're doing very well on the execution side.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

And do you have, Jamie or Stephanie, any preliminary estimate on what we might expect for gains on -- gains or losses on disposals here in the third quarter?

James G. Pierson

We don't, Tom, but I don't expect them to be material or significant.

Operator

The last question comes from the line of David Ross of Stifel.

David G. Ross - Stifel, Nicolaus & Company, Incorporated, Research Division

Yes. I just wanted to get back on the BIPD front. Cargo claims, I understand that, bringing new dockworkers on, a lot of volume, you damaged some freight. But was there anything really behind the accidents in the quarter? Not talking about the development of prior period claims. Was the aging equipment a factor, was the driver training that's insufficient that might need to be tweaked again? Any comments there?

James G. Pierson

Yes. David, it's Jamie. Yes, aging equipment had absolutely nothing to do with it whatsoever, especially when I talk about the second quarter as a standalone. The number of new BI claims wasn't that high, if at all, out of the last, probably, I don't know, 2 or 3 quarters, except for the first of quarter '14. I've already talked about the spike in the claims in the first quarter due to the weather. So if you go back on a more normalized weather quarter, the 2 quarters before that, it's not that much higher, if at all. So I don't consider the second quarter to be that high. Again, it's the development of the claims that were filed prior to this quarter, and the equipment had nothing to do with that.

Operator

There are no further questions at this time. I'll turn the call back over to the presenters.

James L. Welch

This is James. Before we close the call, I just wanted to personally congratulate the 29 YRC Freight, Holland, Reddaway and New Penn State truck driving championship champions who are headed for Pittsburgh for the National Truck Driving Championships next month. So certainly, we wish those folks a lot of luck, and we'll be there to support them. And we're confident that they'll represent the company well.

That concludes our call today. Thanks to everyone for joining us. If you have any questions or follow-up that you want to discuss, please contact Stephanie. Operator, I'll turn the call back over to you.

Operator

This concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: YRC Worldwide's (YRCW) CEO James Welch on Q2 2014 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts