YRC making ‘solid progress’ in Q2 but purchased transport costs drag down earnings

YRC Worldwide, which collectively is the sixth-largest trucking concern in the nation, continues to make what its new chief executive calls “solid progress” in its decade-long return to solid profitability.

YRC, which controls long-haul YRC Freight and LTL regional carriers New Penn, Reddaway and Holland, reported a slight dip in second quarter net income of $14.4 million on $1.33 billion revenue, compared with net earnings of $19 million on $1.26 billion revenue in the year-ago quarter.

Consolidated operating income was $50.9 million in the second quarter, compared with $53.2 million that included a $1 million net gain on property sales in the year-ago quarter.

“Continued industry pricing discipline, favorable demand trends and limited excess capacity provide a positive outlook for the trucking industry,” YRC CEO Darren Hawkins, who succeeded the retiring James Welch this summer, said in a statement. “The broader U.S. economy appears poised to remain in the current strong and durable cycle.

“We made solid progress in the second quarter and remain confident that YRCW is positioned for improved performance in the second half of 2018 compared to a year ago,” Hawkins added.

Holland said YRC’s continued focus is on “improving yield and securing the right freight” at Holland, New Penn, Reddaway and YRC Freight.

“This strategy contributed to solid year-over-year increases in revenue per hundredweight and revenue per shipment that outpaced contractual cost increases,” Hawkins said. The second quarter results were also positively impacted by a meaningful decrease in third-party liability claims and workers’ compensation expense compared to the same period in 2017, he added.

“We continue to make progress replenishing the fleet and in the second quarter we more than doubled the total capital expenditure equivalent investment compared to a year ago,” Hawkins added.

This followed a substantial year-over-year increase in capital expenditure equivalent investment in the first quarter. Hawkins said in the first half of 2018, YRC took delivery of more than 900 tractors with approximately another 500 expected in the second half of the year. In addition, he said YRC has taken delivery of more than 500 trailers in the first half, with approximately another 3,300 expected the rest of the year.

Purchased transportation expenses were a drag on YRC earnings in the second quarter. Such expenses rose $17.6 million in second quarter compared with the same period last year. The increase was primarily due to a $10.2 million increase in equipment lease expensed, of which $8.4 million was attributable to long-term rentals in conjunction with YRC’s strategy to reinvest in its fleet. The purchased transportation results also include a $9.1 million increase in third-party costs for what YRC called “customer specific logistics solutions.” These increases were partially offset by a $2.7 million decrease from reduced usage of local purchased transportation, the company said.

“As we position the fleet to ensure the networks are operating efficiently, we expect the use of short-term rentals to decrease over time,” Hawkins said.

YRC continued to make progress in whittling down debt incurred largely from its decision to buy Roadway Express for $1.03 billion in 2003 under previous CEO Bill Zollars, who has since left the company.

YRC’s total debt-to-adjusted earnings before interest and debt (EBITDA) ratio for second quarter 2018 improved to 3.18 times compared with 3.61 times for second quarter 2017, the company said.

After years of little reinvestment because of that heavy debt load, YRC spent $23 million in capital expenditures and new operating leases for revenue equipment with a capital value equivalent of $38.6 million, for a total of $61.6 million. That equals 4.6% of operating revenue for second quarter 2018. That’s a $32 million increase over the $29.6 million investment in second quarter 2017. The majority of the investment was in tractors, trailers and technology.            

YRC’s consolidated operating ratio for second quarter 2018 was 96.2 compared to 95.8 in second quarter 2017. The operating ratio at YRC Freight was 96.8 compared to 96.1 for the same period in 2017. The three regional carriers’ second quarter 2018 operating ratio improved by 50 basis points to 94.1 compared to 94.6 a year ago.

Second quarter 2018 tonnage per day decreased 1.0% at YRC Freight and decreased 2.4% at the Regional segment compared to second quarter 2017.

At YRC Freight, including fuel surcharge, second quarter revenue per hundredweight increased 5.4% and revenue per shipment increased 9.1% when compared to the same period in 2017.  Excluding fuel surcharge, revenue per hundredweight increased 2.9% and revenue per shipment increased 6.6%.

And at the Regional segment, including fuel surcharge, second quarter 2018 revenue per hundredweight increased 7.6% and revenue per shipment increased 11.4% when compared to the same period in 2017. Excluding fuel surcharge, revenue per hundredweight increased 5.2% and revenue per shipment increased 8.9%, the company said.