While YRC Worldwide reaffirmed its expectation of positive free cash flow in the third and fourth quarters, at least one analyst pointed to a multitude of issues the less-than-truckload (LTL) giant would have to address.
YRC Worldwide's 8K filing with the US Securities and Exchange Commission stating a possible impairment exists in connection with goodwill and trade names for its national transportation segment has Stifel Nicolaus Transportation & Logistics Research Group analysts asking whether there could be further write downs.
YRC Worldwide, parent of Yellow Freight and Roadway , said, “The company expects to remain in full compliance with all terms of its credit agreement, including the leverage ratio.” Stifel Nicolaus analysts David Ross and John Larkin noted, “Most of the company's current book value is comprised of intangible assets.” They highlighted the fact the company is compliant with its covenants today, but noted there is no guarantee of that compliance going forward. The analysts said, “It would not surprise us if the company is required to further write down its intangible assets as the company appears to have consistently overpaid for acquisitions, in our opinion.”
The YRC position, stated by Bill Zollars, chairman, president and CEO, is, "With more than $9 billion in annual revenue and comprehensive networks in the national and regional markets, we continue to provide excellent service to our customers each and every day. Despite the continuing unrest in the broad financial markets, our current financial position is solid and we remain well positioned to weather this economic environment."
Expecting that volume and pricing conditions in the LTL industry will get worse before they get better, the analysts point out that YRC indicated it will be unprofitable in the third quarter (2008) and the analysts suggest the fourth quarter and first quarter (2009) will be “even more challenging.”
The integration of the Yellow and Roadway national LTL units “appears very risky” say the analysts. They point out that past LTL integrations have resulted in customer and financial losses and that the Yellow-Roadway integration would be the largest the industry has seen. “We believe the company has a Herculean task ahead of it in the midst of a freight depression. The likelihood of the company successfully downsizing its way to prosperity by integrating systems, sales forces, labor seniority rosters, line haul, pick-up and delivery, and terminal operators while maintaining two separate brands remains slim,” say the analysts.