Saying the integration of Roadway and Yellow transportation networks is complete, producing the “most comprehensive network in the industry,” Bill Zollars, chairman, president and CEO of YRC Worldwide reported the financial impact of those integration efforts in the first quarter of 2009, along with various other market and company factors had produced a $415 million loss. Excluding the one-time charges, the loss was $251 million for the quarter. YRC's prior-year first quarter loss was $46.4 million.
The economy had progressively weakened during the period, leading to larger volume declines than expected, explained Zollars. “We saw a few head fakes,” he said that had seemed to indicate the declines had bottomed out. During the period, YRC's national less-than-truckload operation also saw some continued freight diversions due to shipper concerns over service levels resulting from the integration.
There were some bumps in the road in that regard and Zollars spoke of some productivity loss as workers become familiar with new tools, systems and procedures. He expressed confidence that those issues were behind YRC along with the integration costs. Some of those costs came from employee severance payments, relocations and facility closures. He put a total price tag of $65 million on the first-quarter integration costs.
The $65 million in up-front costs are expected to produce a $250 million run rate, according to Tim Wicks, executive vice president and CFO. So , the benefits of the effort and investment should begin to show in the first year, he suggested. Another benefit in cost reductions comes from the 10% wage concession YRC negotiated with the International Brotherhood of Teamsters. That concession results in an estimated $240 million-per-year savings or nearly $1 billion over the term of the contract. In addition, YRC has had some significant reductions in head count. Over 800 non-union jobs were eliminated through the integration and another 900 non-union jobs disappeared as a result of lower volumes. Wicks also pointed out YRC was down over 4,000 union positions compared with the fourth quarter due to integration and reduced volumes and nearly 9,000 compared to the first quarter of 2008. With the integration of the networks, Wicks said YRC feels it can add a significant amount of volume without increases in labor, resulting in a health incremental margin as the economy improves.
YRC is currently engaged in negotiations with the Teamsters regarding deferral of pension payments. YRC has obtained approval to pledge assets against the deferred pension payments and it has approached the Teamsters with a proposal to defer second-quarter payments that could amount to $120 million (at an estimated level of $40 million per month). That agreement has not yet been finalized and, therefore, YRC cannot say when those deferred payments would be made.
YRC is looking for a combination of factors coming together to fuel its turnaround. In addition to winning back shippers who have diverted freight from the YRC system, it is looking for continued productivity improvements and market volume increases. “Expect us to go on the offense now in the marketplace,” said Bill Zollars.