Transportation

A 'Once-in-a-Lifetime' Chance for Freight Hauler YRC Worldwide

Paul Ausick

Published: August 4, 2020 1:36 pm

YRC Worldwide Inc. (NASDAQ: YRCW) reported second-quarter 2020 results after markets closed Monday. The less-than-load (LTL) trucking company posted a diluted loss per share of $1.09 on sales and operating revenues of $1.0 billion. In the same period a year ago, the company reported a loss per share of $0.71 on revenue of $1.3 billion. The net loss beat analysts’ consensus estimated by 29 cents per share.

But that was not the best news for shareholders. On July 1, YRC received approval for a $700 million loan from the U.S. Treasury. In a conference call following last night’s report, company Chief Financial Officer Jamie Pierson called the loan a “once in a lifetime opportunity” to invest in the “backbone” of the trucking business: new tractors and trailers.

The U.S. Treasury loan is being disbursed in two tranches: the first $300 million will be used to satisfy deferred short-term obligations and the second $400 million tranche will be used to buy new tractors and trailers.

Not everyone was pleased with the federal largesse to YRC. The oversight committee created to oversee CARES Act disbursements questioned the company’s designation as a “business critical to maintaining national security.”

According to a report in Freight Waves, YRC was able to secure the federal loan because it provides about two-thirds of the Pentagon’s LTL services. The oversight commission was not impressed: “It is far from clear that the fourth-largest LTL shipping company in the United States is critical to maintaining national defense because it reportedly delivers ‘food, electronics and other supplies to military locations around the country.'”

There’s little doubt that the loan was a lifeline for YRC. The interest rate on the loan was 4% lower than the company’s most recent prior debt financing. As for the nearly 30% of YRC equity that the company has turned over to the U.S. Treasury, the oversight committee noted YRC’s bankruptcy risk casts doubt on the value of the equity as protection for the taxpayer investment. YRC had to include a “going concern” notice in its first-quarter earnings report, a notice that it was able to remove in the second quarter thanks to the Treasury loan.

YRC posted a year-to-date high of $3.57 on July 20, but a 12-month high of $4.79 was posted last September. Shares traded up about 15% in the early afternoon Tuesday, at $3.31 in a 52-week range of $1.29 to $4.79. The stock’s consensus price target is $5.00 a share.