YRC Worldwide Inc. (YRCW), the struggling trucking company, yesterday declared a rosy financial outlook for fiscal 2011. The company estimated that its fiscal 2011 revenue will rise by a whopping 14% to $4.93 billion compared with $4.33 billion in fiscal 2010. Adjusted earnings before interest, taxes, depreciation, and other charges will be around $209.8 million, a considerable increase of 184% from $73.9 million in fiscal 2010.
YRC Worldwide has been reeling under the threat of bankruptcy resulting from a significant fall in freight volume coupled with its highly leveraged balance sheet. Although the U.S. trucking industry is recovering from recession, YRC Worldwide fails to cope with this current recovery. The company’s viability depends on its ability to become profitable but unfortunately, we do not expect it to reach that stage any time soon.
The company is facing major challenges including sustaining liquidity, dilution of preferred stock, loss of customers and a competitive LTL (less than truckload) market. Trucking industry remains highly competitive. YRC Worldwide is gradually losing market share to its competitors such as Arkansas Best Corp. (ABFS), Con-way Inc. (CNW), and Knight Transportation Inc. (KNX).
The company is trying to deter the imminent financial collapse in every possible way. Despite prudent moves to manage liquidity, we believe YRC Worldwide must stop cash consumption for operations. In our view, the company’s near-term bankruptcy risks still persist. Of late, management has taken some measures such as an aggressive pricing strategy and emission control to streamline its operations.
On July 11, 2011, YRC Worldwide crossed a major hurdle for its restructuring plan. The company announced that it has secured commitments for a 3-year $400 million asset-backed loan facility, which will replace its existing asset-backed securitization facility.
Earlier in April 2011, YRC Worldwide entered into a definitive agreement with its secured lenders, pension funds, and the International Brotherhood of Teamsters to inject new capital to improve the company’s sagging liquidity condition. This restructuring plan will inject $100 million in new capital to eliminate a portion of the debt and is expected to be closed by July 22, 2011. Management has also decided to sell around $40 million of real estate assets in 2011.
We maintain our long-term Neutral recommendation on YRC Worldwide. Currently, it holds a short-term Zacks #4 Rank (Sell) on the stock.
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