Counter-Cycle Upgrades in YRC Worldwide (YRCW)

The business of trucking and transporting goods has not  been a stellar for quite some time.  In 2007 to 2008, the sector was hurt by escalating gas prices and an inability to pass on fuel surcharges until it was too late.  Now it has to deal with an economy in the tubes where less stuff gets shipped.  So it might seem odd that a debt ratings agency would raise YRC Worldwide Inc. (NASDAQ: YRCW).  It might also seem odd that a Wall Street analyst would take a positive call on it.

The reason for both calls revolves around a union accepting roughly 10%lower wages at the company and a terminated tender offer.Interestingly, the Teamsters at the company will receive a 15%ownership stake in the company.

Today, S&Praised its rating to "CC" from "CCC" on the news that it terminated adebt tender offer and negotiations with its bank group to modify terms on its revolving credit and asset backed securitization facilities.

In a separate note, JPMorgan has raised its estimates.That research piece noted that YRC Worldwide could save an extra $75 million to$85 million through cuts by non-union workers and up to $200 million inits ongoing unit streamlining plan, even if there is uncertaintysurrounding that plan. But here is the magic of this call:  JPMorganwas expecting a loss of -$2.20 EPS and First Call was expecting a lossof -$1.07 EPS for this year.  JPMorgan now expects a profit north of$1.00 before all the restructuring and extraordinary charges.

It appears that this Teamster action is going to remove between $220 to$250 million in annual expenses.  It may also help the company in debtnegotiations.

S&P’s upgrade to "CC" is still deep in junk territory, and it isstill an ugly rating.  But the company is on developing watch and couldultimately get more upgrades. If JPMorgan is remotely accurate on itscall, other brokerage firmswill be following suit in their increased earnings estimates.

There is a reason that shares are up almost 10% at $5.10 today.  Its 52-week trading range is $1.20 to $22.52.

Jon C. Ogg
January 9, 2009