Will Teamsters Union Play Ball With YRC’s Struggling Turnaround?
- AP
Shares of YRC Worldwide Inc.YRCW -5.96% fell sharply Wednesday after the transportation company reported disappointing quarterly earnings that it said stems from restructuring a subsidiary.
YRC began a major restructuring of its freight division earlier this year that involved changes such as consolidating end-of-line terminals and reducing distribution center locations.
But not enough truckers relocated to the terminals that gained freight volume, resulting in a driver shortage, YRC said. That helped cause delays in shipments and other problems, leading to “some temporary loss of business that, obviously, we’re not happy about,” YRC Worldwide Chief Executive James Welch said on a conference call Tuesday with analysts and investors.
In addition, YRC is saddled with almost $1.4 billion in debt, much of which is coming due in the next two years–and the company’s creditors won’t allow it to refinance until it renegotiates contracts with its labor union.
“In the past, some companies in our position have simply declared bankruptcy,” Mr. Welch wrote in an open letter to employees last month. “We have all worked too hard and sacrificed too much to go that route and lose some of the industry’s best jobs.”
Shares dropped $2.01, or 21%, at $7.72 in 4 p.m. trading Wednesday on the Nasdaq, a nearly 80% drop compared with a peak of $35.79 in July in the weeks after the company reported rosier first-quarter results.
While revenues were up slightly year-over-year at $1.25 billion in the third quarter, operating profit fell 79% to $5.8 million, primarily due to problems at YRC Freight. There, the company lost $9.7 million, compared with a profit of $2.8 million in the same quarter last year.
Mr. Welch, chief executive of the company since 2011, also took over as president of YRC Freight on Sept. 20, where he says he implemented a 90-day plan to turn the freight division around. He said there have been signs of some improvement in October. “Volume levels have improved in comparison to 2012, and this is the first time since March of 2012 that we’ve seen this,” he added during the call.
YRC Worldwide postponed releasing its quarterly earnings by a few days to meet with representatives of the International Brotherhood of Teamsters, which represents about 26,000 union employees at the company. The company’s creditors have said it must renegotiate the contracts for longer to mitigate the risk of instability in the next few years before the company can refinance its debt.
The company faces a debt principal repayment due in February of about $69 million, with an additional $1 billion due in late 2014 and early 2015. The company said current interest rate payments are also eating any remaining capital.
After the events following the Lehman Bros. collapse in 2008, YRC Worldwide renegotiated its union contracts, with workers taking a 10% pay cut. In subsequent negotiations, workers took further pay cuts and concessions. The current contract is in place through May 2015 for the 26,000 workers.
A spokeswoman for the Teamsters declined to comment.
Thomas Albrecht of BB&T Capital wrote in a note Wednesday that he thinks the odds of the Teamsters approving the contract are at least 70-30 because of the number of jobs at stake. “While we don’t know for sure, we believe an extension will be similar to the current contract, which has provided small annual wage increases in each April since 2010 and has avoided a large wage snapback,” he added.
Mr. Welch said extending the contract at competitive terms is a must for the company’s survival during the call on Tuesday.
“The path is clear. In order for us to more holistically refinance the capital structure, we need a more competitive contract,” Mr. Welch added.
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