Will YRC Worldwide Survive 2011?

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"When you find yourself in a hole, stop digging."
-- Will Rogers

YRC Worldwide (Nasdaq: YRCW  ) sure has dug itself deep. This trucker just finished the 19th renegotiation of its loan obligations to its bankers. Crunching the numbers, Credit Suisse declared the only real effect of the revamp is to ensure that "any future cash flows generated by YRCW will [go to] the banks ..."

Which is to say, it benefits YRC shareholders not at all. Little wonder that the stock appeared yesterday in a article blasting the top five most-sell-rated stocks on the planet. According to TheStreet, barely half a dozen analysts think YRC is worth holding today, and seven say you should put this stock out of your portfolio's misery, and sell. Are they right?

YRC's "black hole" balance sheet
In a word: "Yes." With a market cap of only $183 million, but $945 million in net debt, YRC today looks less like a viable company, and more like a never-ending cornucopia of interest revenue for its lenders. Over the past 12 months, YRC paid $173 million in interest to its lenders -- nearly as much as its market cap. The last year it made enough operating profit to comfortably support such usury was in 2007, when our economy looked much different from today. (Even in that year, the company ran a slight free cash flow deficit.)

True, some say American industry is turning around, and that the transports will follow. From what he's seeing among Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) subsidiaries, Warren Buffett believes the Great Recession really is over, and there will be no "double dip." General Electric (NYSE: GE  ) recently put its money where Buffett's mouth is, investing $432 million to retool its appliances division.

But to this Fool, it seems likely that any recovery that revives YRC's business prospects is just as likely to inflate interest rates. In other words, even if YRC's revenues do revive to the point where it starts making money, chances are it'll be forced to turn around, and give all that money to the banks. Meanwhile, Con-Way (Nasdaq: CNW  ) is buying trucks and gearing up to steal YRC's market share, and FedEx (Nasdaq: FDX  ) recently restructured its LTL business to better compete with YRC and others.

Foolish takeaway
Sometimes, the way to deal with a hole is to stop digging. With YRC, however, we should just fill in the hole, lay flowers upon the grave, and walk away.

Rich Smith does not own shares of, nor is he short, any company named above. The Motley Fool has a disclosure policy.

Berkshire Hathaway is a Motley Fool Inside Value selection. Berkshire Hathaway and FedEx are Motley Fool Stock Advisor picks. The Fool owns shares of Berkshire Hathaway and FedEx.

Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Read/Post Comments (9) | Recommend This Article (30)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 30, 2010, at 2:33 PM, Minding0 wrote:

    As a friend of mine said, everyone is hell-bent on resurrecting this company; too much to lose otherwise. Revs/share are huge, costs are lower, and earnings will be improving. With a higher stock price, you'll see a secondary used to reduce debt.

    If you don't like the prospects, go elsewhere but save the flowers for Valentine's Day.

  • Report this Comment On December 30, 2010, at 3:42 PM, malcolmmclean wrote:

    YRCW is mainly an LTL carrier with a small portion of their business on the truckload side. Heartland Express is not going to knock them out. FedEX had tried to price YRCW out of business last year and is now backing off. However FedEx, Conway, ABF and Old Dominion (look at their stellar performance this year) are offering the service and coverage that is wearing them down. UPS LTL struggles with service but is there also. YRCW continues to reduce staff and their published transit times are 1-2 days slower than the competition and they arent hitting them either. The only way for them to get business is to cut pricing. It is sad to see this once great carrier slowly sinking.

  • Report this Comment On December 30, 2010, at 4:25 PM, quickymart wrote:

    Per their new union agreement, YRC has to recapitalize and if they issue new equity, it will wipe out current shareholders. They haven't earned a dime from operations in years (despite hundreds of millions of concessions from pensions, banks and employees) and they haven't reinvested in equipment adequately either. They've lost half their market share in a very short period of time. I don't see how anybody objectively concludes this company isn't a loser.

    (But, they aren't even in the same market segment as Heartland, so that was an ignorant comment by the author.)

  • Report this Comment On December 31, 2010, at 1:55 AM, republican9 wrote:

    There they go again! (It must be a slow news day). The critics and competition have been trying to start rumors about YRC for two years now. There are other LTL Co.that are in big trouble. As an insider, I can tell you that YRC is on the up-swing.

  • Report this Comment On December 31, 2010, at 1:36 PM, HAVENODEBT wrote:

    A company like YRCW is whats wrong with our markets and financial system.

    A few guys making money on worthless paper...

    A few lenders taking fees and providing no economic value for shareholders..

    This thing should have been closed a year ago.

  • Report this Comment On December 31, 2010, at 3:49 PM, marjorum wrote:

    YRCW continues with unusual business practices that serve to unnecessarily increase its costs. Have a friend who works at a terminal in a large city. The drivers pick up parcels for delivery within the large city or one of its suburbs and bring them to the large city's main terminal, where they are loaded on a truck to go to another city over 250 miles away to be sorted and returned to their city of origin. Not only does this increase delivery time from shipper to receiver,but it also increases handling costs, diesel costs, and labor costs. Customers are unhappy when it takes 3 days to get a shipment just across town; my friend says many customers no longer use YRCW because of this delivery time issue. The only reason I know why YRCW continues this wasteful practice is sheer stupidity; they are killing their own company!

  • Report this Comment On December 31, 2010, at 7:02 PM, Mustang6147 wrote:

    Somebody in the corporate office is trying real hard to keep this company afloat, to bad they have no clue how terminals are being run, or not run.

  • Report this Comment On January 02, 2011, at 5:47 PM, yrcwatcher wrote:

    This company never ceases to amaze me with it's "comprehensive plan" I worked for one of the YRC companies longtime through early 09. When we gave up the 1st 10% of pay they said we would return to profittability next yr. Their debt was incurred when they were a much bigger company with more chance for large revenue making a difference. Now, the company is half the size and has 2-3 times the debt in relation to income potential. No investor but day traders should invest in this company. The competition is too great to overcome. Holland and New Penn are doing well but they will be casulties in this disaster.

  • Report this Comment On February 09, 2011, at 1:51 PM, unhappycustomer wrote:

    I can assure you that this company is going down. I was a customer up until recently and can say with certainty that this company is extremely disconnected from its customers. After using some LTL competitors, it really brought many problems with YRC to light. No one cares about anything there. I have personally tried to get my problems addressed only to be re directed each and every time to someone else that doesnt know whats going on.I WILL NEVER USE YRC EVER AGAIN!!!

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