YRC Worldwide Pays for Owning Its Trucks With Lower Guidance

Last week, we told you now is not the time to own a truck. Continuing the trend this earnings season, truck-owning YRC Worldwide (YRCW) (formerly known as Yellow) expects margins to be hurt by a slowdown in shipping.

Yahoo finance reports:

Transportation company YRC Worldwide Inc., whose brands include Yellow Transportation and Roadway, said Thursday its third-quarter profit rose 12 percent on lower expenses, as revenue edged up 3 percent. But the company issued a disappointing outlook, sending its shares down 41 cents to $38.79 in [Thursday] aftermarket trading. They closed up 39 cents at $39.20 in regular Nasdaq trading.

For the full year, YRC projects a profit of $5.45 to $5.55 per share on revenue of about $10 billion. In July the company had projected year earnings of $5.65 to $5.85 per share on revenue of $10 billion.

That is a $0.20 per share guidance reduction with just one quarter left in the year. Next year’s EPS could be $1.00 or more less than current estimates. As we said before, trucks cost money even when they aren’t being used. As the economy slows, those companies like CH Robinson (CHRW) and Landstar (LSTR) that get their capacity from independent contractors on an as-needed basis have lower overhead expenses and remain profitable. If the economy slows much further, YRC’s guidance reductions will be even larger.

YRCW 1-yr chart:

Disclosure: Author does not own shares of YRCW.

Comments

[Paul Meisel]

Your analysis makes sense. However, those investing should remember that when the transport markets turn, even briefly (like during Katrina), that the trucking companies relying on independents face a squeeze. Difficulty getting owner operators causes them to either pay more or give up routes and loads.

[WilliamTrent]

In general that may be true, but using your Katrina example, Landstar was able to source all the capacity it needed for its disaster relief contract with FEMA. Given that they pay on the basis of a percentage of revenue, tight capacity (and higher rates) can actually help them recruit more drivers.

What does happen, though, is the leveraged carriers get a more sizable EPS growth rate - especially immediately after the economic bottom - and that can lead to better gains for asset-based stocks in those times.