Fresh from striking a tentative agreement with the Teamsters, YRC Worldwide (Nasdaq: YRCW) is now turning its attention to its pocket-change share price.
The trucker specializing in less-than-truckload shipments will execute a 1-for-25 reverse split on Friday. Every 25 shares will be exchanged for a single new share at a price that is 25 times higher.
For example, based on last night's close of $0.32 a share, every 25 shares would be replaced with a single share at $8. It's a zero-sum game, but it has a funny way of replacing speculators with serious investors.
Shares of YRC took a hit in after-hours trading, but that's just the penny stock chasers bailing. If YRC is able to take advantage of driver concessions to steer its way back toward profitability, the company will be more valuable in the future.
YRC didn't really have much of a choice here. It was about to be delisted by NASDAQ (Nasdaq: NDAQ), under an arcane policy that boots stocks from the exchange if they trade below $1 for extended periods of time, regardless of the company's actual market cap or enterprise value. YRC had scheduled a meeting to appeal the move next month, but NASDAQ was unlikely to budge -- and YRC's shares were unlikely to more than triple in that time.
The problem with YRC is the same one that keeps Sirius XM Radio (Nasdaq: SIRI) so close to the $1 mark despite rattling off several great quarters. Both companies just have way too many shares outstanding, with Sirius XM at nearly 3.9 billion shares issued.
In YRC's case, it has a whopping 1.2 billion shares outstanding after its highly dilutive recapitalization efforts over the past year. A year ago, YRC only had 59.5 million shares outstanding. Sadly, the reverse split will be essentially undoing the dilutive share damage, as YRC expects to have roughly 48 million outstanding common shares after Friday's move.
Ignore today's initial repulsion. YRC's fundamentals are better than that. FedEx's (NYSE: FDX) decision to combine its freight businesses earlier this month should help eliminate the discounting that's been plaguing the less-than-truckload shippers. YRC and rivals Old Dominion Freight Lines (Nasdaq: ODFL), Arkansas Best (Nasdaq: ABFS), and Con-way (NYSE: CNW) initially rallied on the FedEx internal consolidation news two weeks ago.
Pulling in reverse isn't the end of the road, YRC shareholders. Sometimes it's necessary to back out a bit before heading to where you're going.
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