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WIKI ANALYSIS
The company ships a wide variety of goods, making its revenues a barometer for the overall economy's health. YRCW is particularly exposed to the manufacturing and retail sectors, and it depends on the two biggest U.S. retailers, Wal-Mart and Home Depot, for 12% of its business.
YRCW faces particular challenges from increased federal regulation of state and national borders (due to terrorism) as well as more stringent emissions rules set forth by the Environmental Protection Agency (environmental concerns). In addition, 70% of the company's employee base is unionized, exposing the company's operations to potential work shortages/stoppages and the bargaining power of the International Brotherhood of Teamsters.
Business Overview
YRC Worldwide divides its subsidiaries into three business groups.
- YRC National Transportation, which includes Yellow Transportation and Roadway Express, provides national less-than-truckload services. In LTL shipping, a trucking company typically consolidates multiple shipping orders onto one truck, thus requiring the company to maintain sorting terminals where freight loads are consolidated with other shipments that have proximate destinations. YRC Worldwide typically charges a base shipping rate plus a variable rate that fluctuates with diesel prices. YRC National Transportation serves the United States, Canada, Mexico, and Puerto Rico. About 38% of shipments are completed within two days.[3]
- YRC Regional Transportation also provides LTL freight services, but the subsidiaries operate within regional segments. This business group includes the brands, New Penn Motor Express, USF Holland and USF Reddaway. About 90% of shipments are completed within two days.[4]
- YRC Logistics offers logistics management that involves YRC Worldwide working with customers to form a comprehensive plan and coordinate movement of goods across the globe. YRC Worldwide generates revenue by developing shipping strategies that incorporate a client’s time, cost, and reliability needs. The company will also warehouse goods and negotiate freight pricing.
Overall Financials
As seen in the chart below, revenues increased from 2004 to 2006, while operating income stayed relatively flat. The difference in revenues can be largely attributed to the acquisition of USF Corp. in May 2005, (this wholly owned subsidiary only generated revenue for YRC Worldwide for 7 months in 2005 and all of 2006). The USF operating companies accounted for about a $1.45 billion increase in revenues between 2004 and 2005[5]. Another factor that led to the increase in revenue was fuel surcharge revenue.
As fuel prices rose, customers paid higher fuel surcharges, which are correlated to national diesel prices, and are reset each week. This surcharge increases revenue, but has minimal impact on operating earnings.
Operating earnings showed a 48.3% improvement in 2005 over 2004 due largely to improving economic conditions during that span, as demand for shipping was higher. In addition, YRC Worldwide was able to reduce costs by $150 million through its cost reduction program. Between 2005 and 2006, operating earnings rose 1.3%. Overall pricing increased modestly, but total volume declined year over year, especially in the latter half of 2006.
Business Units Contribution
The table below shows the portion of revenue and operating earnings each business group contributed to the company in fiscal year 2006. For instance, YCR Logistics generated 6.2% of the total revenue generated by YRC Worldwide.
Revenues and Earnings by Business Segment[7]
| Business Segment | % of 2006 Revenues | % of 2006 Operating Income | |
|---|---|---|---|
| National Transportation | 69.1% | 72.5% | |
| Regional Transportation | 24.7% | 24% | |
| Logistics | 6.2% | 3.6% | |
The tables below show revenue and operating income for the first 9 months of 2007 compared to the first 9 months of 2006. The figures show an overall decrease in revenue and operating income. The decrease in the numbers is mostly linked to declining truckload volume.
Revenues (in millions) by Business Segment[8]
| Business Segment | 1/1/06 - 9/30/06 | 1/1/07 - 9/30/07 | Difference | |
|---|---|---|---|---|
| National Transportation | $5,196.5 | $5,108.3 | -$178.2 | |
| Regional Transportation | $1,870.9 | $1,804.9 | -$66 | |
| Logistics | $443.6 | $449.4 | -$5.8 | |
Operating Income (in millions) by Business Segment[9]
| Business Segment | 1/1/06 - 9/30/06 | 1/1/07 - 9/30/07 | Difference | |
|---|---|---|---|---|
| National Transportation | $321.6 | $216.3 | -$105.3 | |
| Regional Transportation | $123 | $8.5 | -$114.5 | |
| Logistics | $6 | $4.7 | -$1.3 | |
Key Trends and Forces
- Sensitivity to Economic Conditions: The trucking industry is closely tied to U.S. economic cycles and is particularly vulnerable to fluctuations in the manufacturing and retail sectors. This correlation between economic growth and trucking profits is due to basic supply and demand economics since customers typically use a bidding system, which tends to keep prices fairly competitive; when shipping volume decreases in a weakening economy with supply held constant, then prices usually decrease.
- Government Regulations: YRC Worldwide is subject to follow regulations set forth by the US Department of Transportation and Homeland Security, along with the Environmental Protection Agency (EPA). YRC Worldwide ships most goods with a guarantee on shipping time. Any further restrictions on the industry could potentially disrupt their shipping times and negatively effect business relationships. Terrorist events could lead to more restrictions and guidelines for the transportation industry. In addition, the EPA requires a progressive decrease in diesel truck emissions through 2010 due to environmental concerns. These regulations could lead to higher fuel, trucks, and maintenance expenses.
- Union Risks: With 70% of YRC Worldwide's employees belonging to the International Brotherhood of Teamsters, the company is exposed to a few labor risks.[10] If conditions between the company and the union were to deteriorate, then YRC Worldwide would be more vulnerable to shortages or stoppages, which would adversely effect business operations and income. Moreover, YRC Worldwide's laborers may have more bargaining power than non-unionized competitors, thus, the company may have to pay higher labor expenses than its industry average. The existing 5-year agreement expires on March 31, 2008.
- Fuel Expenses: YRC Worldwide, along with its peers in the trucking industry, are relatively shielded from changes in fuel prices, because of a generally accepted fuel surcharge system, in which customers agree to pay established shipping rates plus or minus a change in diesel prices. However, if diesel prices continue to increase, it may be harder for the trucking industry to continue its practice of applying the expense to their customers.
- Customer Concentration Risk: YRC worldwide’s two largest customers, Home Depot (HD) and Wal-Mart each contribute 6% of the company’s revenue. [11] Some of YRC Worldwide's larger customers may be able to exert higher bargaining power than its smaller clients, and if one of these customers were to leave, it would have a substantial impact on the company's financial performance.
- Ongoing Capital Expenses: The LTL business requires maintenance and leasing payments of operational facilities, in addition to truck and freight expenses. If cash flow from operations were to decrease, it may force YCR Worldwide to seek outside financing in order to pay reoccurring capital expenses. In turn, outside financing could be expensive if interest rates are high.
Competition
YRC Worldwide competes with other companies along the lines of its subsidiary divisions.
- YRC National Transportation competes primarily with FedEx Freight and Conway Inc (CNW). The national LTL freight service has seen consolidation and liquidation, but remains competitive. This part of industry has seen the least growth, but also involves high barrier to entry. Capital expenses needed to build sorting facilities and operate trucks involve substantial capital contribution.
- YRC Regional Transportation competes with a wide selection of transportation businesses. The larger competitors are Arkansas Best (ABFS), Old Dominion Freight Line (ODFL), and Saia (SAIA), but there are also entities that only own a few trucks and operate as a for-hire contractor. The LTL model still requires large expenses to operate facilities but less than the national scale.
- YRC Logistics operates against companies such as Forward Air (FWRD) and Expeditors International of Washington (EXPD). The industry is generally less capital intensive and priority is placed on the technological solutions offered by the firms.
Overall, the trucking industry tends to see periodic price decreases by firms, which try to capture extra business. Moreover, many customers use a bidding system, which tend to keep prices fairly competitive. For instance, Wal-Mart Stores (WMT) needs freight shipped, so asks several shipping firms to submit how much payment they are willing to accept. The lowest bid usually wins the contract.
YRC Worldwide approach to gaining market share from competitors and being more profitable is to be a one-stop shop for shipping customers. Through its subsidiaries, YRC offers a range of regional and long-haul LTL destinations. The company’s logistic division also provides customers with access to management solutions of transportation services.
Market Share
The following table shows 20 of the largest Truckload and Less-than-Truckload companies. Some companies are a subsidiary of a larger corporation. For instance, FedEx Freight is owned by FedEx (FDX). Further, several of the listed companies earn a portion of revenues outside of transporting goods, such as warehousing and logisitics. These instances usually account for less than 10% of the total sales.
Comparing Truckload and Less-than-Truckload Companies[12]
| Company | Sales (in $millions) | 1-Year Sales Growth | Tractors | Trailers | Terminals |
| YRC Worldwide | $9,918.7 | 13.5% | 17,500 | 64,200 | 670 |
| Con-Way Inc. | $4,221.5 | 1.2% | 7,800 | 30,500 | 440 |
| Schneider National | $3,700.0 | 5.7% | 14,400 | 48,000 | N/A |
| FedEx Freight | $3,645.0 | 13.3% | 14,000 | 45,000 | 470 |
| J.B. Hunt | $3,328.0 | 6.4% | 11,100 | N/A | N/A |
| Swift Transportation | $3,172.8 | -0.8% | 18,000 | 50,000 | 30 |
| Landstar System | $2,518.0 | -0.1% | 8,800 | 13,600 | N/A |
| Werner Enterprises | $2,080.6 | 5.5% | 9,000 | 25,000 | N/A |
| Arkansas Best | $1,860.5 | 0.0% | 4,000 | 20,000 | 290 |
| Estes Express Lines | $1,447.2 | N/A | 6,500 | 22,800 | 185 |
| Old Dominion Freight Line | $1,279.4 | 20.5% | 4,600 | 17,900 | 180 |
| UPS Ground Freight | $1,014.1 | N/A | 6,800 | 22,800 | 210 |
| Averitt Express | $921.3 | N/A | 4,000 | 11,250 | 80 |
| Saia | $874.7 | -20.3% | 2,900 | 9,000 | 150 |
| Southeastern Freight Lines | $711.0 | 9.8% | N/A | N/A | N/A |
| DATS Trucking | $600.1 | N/A | 500 | 1,000 | N/A |
| AAA Cooper Transportation | $528.8 | N/A | 2,300 | 6,000 | 75 |
| Vitran Corporation | $514.1 | 20.1% | N/A | N/A | 125 |
| Koch Companies | $200.0 | N/A | 650 | 1,820 | N/A |
| NFI Industries | $187.2 | N/A | 3,000 | 8,000 | 50 |
| Central Freight Lines | $185.9 | N/A | 1,900 | 8,500 | 65 |
| A. Duie Pyle Inc. | $77.9 | N/A | 540 | 1,450 | 12 |
| TOTAL: | $40,251.6 | 125,490 | 377,820 | 2,592 | |
References
- ↑ http://www.yrcw.com/about/gallery/equipment/equipment_r_large_5.jpg
- ↑ http://www.yrcw.com/about/gallery/equipment/equipment_large_1.jpg
- ↑ YRC Worldwide (YRCW) Form 10-Q, 3Q 2007, “Description of Business”, Page 7
- ↑ YRC Worldwide (YRCW) Form 10-Q, 3Q 2007, “Description of Business”, Page 7
- ↑ YRC Worldwide (YRCW) Form 10-K, Fiscal Year 2006, “Consolidate Results”, Page 22
- ↑ YRC Worldwide (YRCW) Form 10-K, Fiscal Year 2006, “Consolidate Results”, Page 21
- ↑ YRC Worldwide (YRCW) Form 10-K, Fiscal Year 2006, “Consolidate Results”, Page 22-26
- ↑ YRC Worldwide (YRCW) Form 10-Q, 3Q Fiscal Year 2007, “Business Segments”, Page 12-13
- ↑ YRC Worldwide (YRCW) Form 10-Q, 3Q Fiscal Year 2007, “Business Segments”, Page 12-13
- ↑ YRC Worldwide (YRCW) Form 10-K, Fiscal Year 2006, “Narrative Description of Business”, Page 12
- ↑ http://www.seekingalpha.com/article/52592-yrc-worldwide-and-a-healthy-economy-where-s-the-connection
- ↑ http://www.hoovers.com/industry/transportation-services/--HICID__1597--/free-ind-factsheet.xhtml
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