YRC Worldwide: Long-Term Investors Could Still Get In On The Bottom

YRC Worldwide (YRCW) is one of the largest trucking companies in the U.S. and the company has suffered along with the U.S. economy through a tough first quarter. YRCW stock has plunged for more than a year, today trading at levels 70% lower than a year ago. However, after releasing earnings and an optimistic forecast, the stock is up a whopping 30% at the time of writing. Trucking is often viewed as a leading indicator of economic activity, so the guidance offered by the company’s CEO is a hopeful one.

The results for the first quarter were mostly in-line with estimates as the company was in the red. The poor performance was in part due to one-time items, skyrocketing fuel costs, tough winter driving conditions, and the soft economy. YRCW struggled to integrate some new acquisitions which resulted in over 1,000 job cuts and the closure of some trucking bases. Margins have been pinched as the company was unable to offset rising fuel costs with price increases due to the hyper-competitive nature of the trucking business. Also, CEO Bill Zollars said that hauling imports from China – previously a major growth area—held fairly steady as did most all import and export business.

Zollars predicted that YRCW will return to profitability in the second quarter of this year, when he expects overall operating conditions to improve. He is extremely excited about the company’s new foray into trucking within China. If YRC can gain a foothold in China—whose industries continue to grow at a pace unrivaled in the rest of the world—it could serve as a great revenue generator in times of U.S. economic weakness. YRCW has nearly completed its acquisition of Shanghai Jiayu Logistics, which is a small operation by U.S. standards, but one of the largest in China. The potential for growth in China is readily apparent as production there continues to boom. Zollars stated: "what you will see is a fairly significant inventory build-up prior to the Olympics. They will make sure there is no interruption in supplies."

YRCW’s valuation still looks very compelling even after the significant jump in the stock Friday. Based on a historical study of what the market was willing to pay for YRCW for a given level of sales and cash, we have a rationally expected range for the stock of $27-$37 per share. The normal range of price-to-cash flow is between 4.25 and 7.18, but it is currently only 2.17, which is 49% below the low end of our range. Even more impressive is the price-to-sales metric, which is normally between .195 and .35. The current value is .077, which is 61% below the low end of the range. According to the guidance by the company today, the worst is behind YRC Worldwide, and long- term investors could still get in on the bottom floor even after the 30% pop today.

Disclosure: none

Comments

[locke]

Long term? Long term we have peak oil. That's not good news for the trucking industry.

[bearfund]

Amen, locke. Long term, all long haul trucking goes to zero. Buy rail and shipping, local trucking if you're a masochist. Trucking in China is no different than trucking anywhere else, it goes to zero too.

[trucker]

This company just had a disastrous quarter of huge negative EPS, is bleeding substantial market share loss, just refinanced its debt with higher interest rates and collateralized assets, has $billions of off-balance sheet debt, cut its capital expenditures below maintenance levels, has a union in a non-union industry (with a wage hike May 1) and... let me get this straight... you think they're a good bet???

[easyrider]

Trucker is a little misinformed. The wage hike went into effect on APRIL 1, not May 1.
How does he figure that the trucking industry is a "non-union" industry? Maybe he thinks that the company should be more inline with the petroleum industry, where corporate greed dictates profits.
One other thing you can point your figure at, is the strike at AMERICAN AXLE. Not only does in affect that companies profitablity, it affect 1000's of other vendors, which in turn affects their employees. That's a pretty large hit on an economy that's already strained. Think about all the goods that these vendors would normally be shipping.
Trucker needs to tell all the independent Owner-ops. and small fleets that they're in a non-union industry. Maybe that's why they are having their equipment repossesed at record levels.
He needs to WAKE UP!!!!!!!

[Teamster]

Trucker: Where is your head? This company isn't Swift, Old Dominion, etc, etc, ... Its a Fortune 500 company with assets in a variety of transportation and logistic portfolios. Yes, its not perfect in operations... but at this time its still making money without loosing long lasting customers. The company offers reality in moving freight at a fair cost. Companies like Conway will swallow up other competitors companies by offering the low rates to swindle them in and turn on the charm. THen they raise the rates back into reality. I see it daily, and I see old customers coming back to YRC (Yellow and Roadway). The shares are rising and it looks like the docks are getting busy again... maybe its time to put your money down on YRCW... especially since 2 weeks ago it was 11.50 a share. 17.00 plus now.

[Teamster]

locke: Hey did you forget that YOU too are paying more for fuel? Trucker all around are paying more, but if you think about it... YRC and LTL in general... add a fuel surcharge to the freight bill. They also buy fuel in fleet rates, which brings down the cost a bit more than the Long hauler getting it at the pump. Oh.. and How doest the fuel get from Refinery to Distribution .... truck... isn't it? Amen.