As you've probably heard by now, YRC Worldwide (NASDAQ:YRCW) recently made its case for why its Teamster union employees should accept cuts to their wages and benefits. As CEO James Welch so delicately put it: "Some companies in our position have simply declared bankruptcy."
According to Welch, unless YRC Worldwide workers want to find themselves standing beside laid-off employees from Hostess Brands, they'd better sit down and talk turkey before Turkey Day. He made that clear in the rest of his letter to union workers, noting that the company's lenders are demanding that it restructure its compensation scheme as a condition of rolling over the company's debt.
The consequence of failure: "We have all worked too hard and sacrificed too much to go that route and lose some of the industry's best jobs."
Think before you speak
But while Welch probably only thought he was speaking plainly to his employees, it shouldn't surprise you that other people were listening. And as soon as investors heard the word "bankruptcy," they freaked out.
YRC Worldwide shares shed 6.5% of their value yesterday. And they're down another 7.6% today, partially on news that the company has postponed its Q3 earnings report till Nov. 12 .
Oops is right. Welch only intended to rattle his 32,000 workers, most of whom are represented by the Teamsters. But a CEO should know better than to throw around the "B" word so lightly ... especially the CEO of a company like YRC Worldwide.
Right now, YRC has only about $166 million in cash on hand. That's more than you'll find at competitor Arkansas Best (NASDAQ:ARCB), with whom YRC tried to merge earlier this year. But Arkansas Best carries a whole lot less debt than YRC, where outstanding obligations were pushing $1.4 billion at last report, with the majority of that debt coming due in just the next two years .
YRC Worldwide's in even worse shape relative to rival Con-way (NYSE:CNW), whose weak earnings spooked the market last week -- but whose $478 million cash pile is three times as tall as YRC's, against a debt load only half as big.
When you consider further than YRC has literally no free cash flow coming in to service its debt -- in fact, its negative free cash flow exceeded $100 million over the past 12 months, and has run negative for nearly five straight years -- bankruptcy remains a very real risk for YRC.
Forgive the shareholders, then, for wishing the CEO wouldn't keep reminding people about it.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.