This Stock Could Fall By 93%

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Just when you thought things couldn't possibly get any uglier for shareholders of trucking company YRC Worldwide (Nasdaq: YRCW  ) -- they did.

In its continuing battle to avoid bankruptcy, YRC announced last week more "creative financing" options which have the potential to keep the company afloat.  The company's proposed plan to its lenders and to the labor union would entail swapping $100 million worth of debt directly for shares of company stock. In addition, the company would restructure some of its debt to longer maturity dates. The final result will likely stomp current shareholder value into oblivion -- as if the precipitous 99.9% fall in the past five years hadn't done that already. Lenders will control 72.5% of the company, the labor union 25%, and shareholders a meager 2.5%.

Tire iron-y
Does anyone find it comical that YRC enacted a 1-for-25 reverse split in October in order to avoid delisting and will now potentially be diluting its stock to the point that it once again fails to meet the minimum listing requirements to trade on the Nasdaq? Not me, and certainly not Art Hatfield, an analyst for Morgan Keegan who currently has a price target on YRC of zero, zilch, nada! His analysis values YRC's per-share price after this diluted share offering at $0.09, or a 93% decline from Friday's close. If you factor in YRC's more than $1 billion in debt, it easily wipes out all remaining shareholder equity.

Just in case shareholders figured they were going to get a break, YRC also reported earnings before the bell Friday -- and you guessed it, they missed the mark. YRC clocked in with a loss of $2.14 per share versus expectations for a loss of $1.53. On the bright side, these figures compare to a loss in the year-ago period of $13.15 per share, so break out those pom-poms! Revenue at $1.12 billion also topped consensus expectations of $1.07 billion. Unfortunately for shareholders, there simply wasn't enough to be excited about.

The striking truth is that despite all of these efforts to avoid bankruptcy, the possibility of a default on its debt is still extremely high. Ratings agency Fitch lowered its rating on the company's debt to CCC, placing the company only one step away from a default rating.  

Between a rough winter and sluggish business, you'd think the entire sector would be swooning, but this simply isn't the case. Arkansas Best (Nasdaq: ABFS  ) is net cash positive and projected to grow at nearly 10% annually over the next five years while Con-Way (NYSE: CNW  ) generated $182 million in operating cash flow in the trailing-twelve months and pays out a 1% dividend. YRC's rivals aren't rolling in the dough, but it's clear that this is a problem confined solely to YRC.

Avoid temptation
My advice would be to overlook YRC's healthy daily volume and resist the urge to buy it based on its share price alone. Management will clearly do anything, including demolishing shareholder equity, in order to keep the company out of bankruptcy -- and even then there's no guarantee that it will survive.

Will YRC Worldwide survive or will it eventually be forced into bankruptcy by its lenders? Share your opinion in the comments section below and consider tracking YRC Worldwide and your own personalized list of companies with My Watchlist.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He would like to remind you not to forget about our friends in Japan who could still use a helping hand. You can follow him on CAPS under the screen name TMFUltraLong. The Fool owns shares of Nasdaq OMX Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that puts investors first.

Read/Post Comments (12) | Recommend This Article (15)

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 May 09, 2011, at 6:52 PM, hacklefty wrote:

    Bill Zollars destroyed two good companies, Yellow Freight and Roadway Express.

  • Report this Comment On May 09, 2011, at 7:08 PM, tooriskyforme wrote:

    This says it all Ladies & Gentlemen.

    Good luck in this one!

  • Report this Comment On May 10, 2011, at 7:21 AM, quickymart wrote:

    Good points, Sean! I think it's criminal the way these facts about YRCW have been obfuscated by the pumpers on the Yahoo Finance message board.

  • Report this Comment On May 10, 2011, at 8:32 AM, Duke5343 wrote:

    Had high hopes after the 25-1 split, but the light at the end of the tunnel has been snuffed

  • Report this Comment On May 10, 2011, at 10:31 AM, easygoer4u wrote:

    You can't sqeeze blood out of a rock.

  • Report this Comment On May 10, 2011, at 5:19 PM, Rapture2012 wrote:

    YRC = Yellow + Roadway It is very simple. Two negatives do not equal a positive! Yellow and Roadway had one thing in common before they became one company. Both had the Teamsters Union. An outdated organization that imposes work rules, wage levels, and benefits that are not competitive in the marketplace. Teamsters Union Bosses prefer that their members work slow so that more are required to do the job, hence more card carrying - union dues paying employees.

    Short of becoming non-union, nothing will stop YRC from going under. It is like trying to stop the tide!

  • Report this Comment On May 11, 2011, at 1:44 AM, ski1948 wrote:

    Unions are the curse for the entire country, they wore out their welcome and have destroyed our economy!

  • Report this Comment On May 11, 2011, at 8:33 AM, 60series wrote:

    Wish you union haters would get your facts straight before posting how really dumb you are.

    Before Yellow bought Roadway & Holland both were profitable companies, mostly debt free & both were union.

    The union did not make Yellow purchase these companies for an inflated price so a few fat cat execs could make millions & put these companies in major debt. The union did not make YRC buy a transportation company in China for an inflated price further digging us in debt to the point to where it is now impossible to ever turn a profit no matter good the economy rises.

    Every time the company came to the union & asked for concessions in pay & benefits from the workers to keep this place going, the workers overwhelming supported it even though management never changed their failed business practice. We took pay cuts to the point that we are making less now than our competitors so you can't blame the union workers on this sinking ship.

    You can look back on every news article on these give backs where Zollars would state that this cut in pay will not only allow YRC to survive but thrive. Well Bill, if you were managing this bad of job working at the quick mart your ass would have been fired a long time ago.

  • Report this Comment On May 13, 2011, at 3:55 AM, freddiefontain wrote:

    ski1948 you must be a republican. If I recall, Bush distroyed the economy by not listening to the right people in congress, like Burak Obama.

  • Report this Comment On May 13, 2011, at 4:22 AM, freddiefontain wrote:

    Just a foot note... Never before can I remember when a company and a union have worked so hard together to save jobs. Agreed! there is blame to go around for all. But, Brother times are hard, when the going gets tough, the tough get going. As they say in texas hold'em were all in!

  • Report this Comment On May 16, 2011, at 11:02 AM, hawkeye462 wrote:

    I would like to point out the (OBVIOUS) for those that seem to be talking about things they know nothing about. The union did not destroy

    yellow or Roadway,BAD MANAGEMENT is the only one to blame.At the time Yellow made the purchase of Roadway the economy was in good shape both companies should have been merged together at that time(you don't buy your competition and compete againts yourself) until the economy goes sour and then start crying to your employees for help.A final thougth and fact. There is no hope for this company in today's economy, at current freight rates it would take 200 years to pay off their debit.Instead of going to the unionfor help maybe Zollar should enroll in Buisness 101 at his local Community College I'm sure someone there is smarter than him(HE SHOULD START AT THE FRONT DESK WITH THE RECEPTIONIST) Have a great day

  • Report this Comment On May 17, 2011, at 10:55 AM, josh41 wrote:

    if it wasnt for the union u wont be make as much money as u are there good its was zollars that did it, making 18 million a year did he take a cut in pay? or the rest of managment

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