YRC Worldwide's Aggressive Push May Not Be Enough

OVERLAND PARK, Kan. ( TheStreet) -- YRC Worldwide ( YRCW) is making an aggressive bid to win over shippers scared away by bankruptcy concerns, but even customer gains may not outweigh risks for investors and support the trucking giant's flagging share price.

Earlier this week, YRC Worldwide introduced an automatic money-back guarantee to shippers that deliveries will be made on the scheduled day of service or the company will offer a full refund.

The new guarantee is a transparent move, one made to assuage customer concerns sparked by YRC Worldwide's brush with bankruptcy. Shipping customers fled YRC Worldwide for a number of competitors, including ConWay ( CNW), FedEx ( FDX) and UPS ( UPS), as the company struggled with liquidity concerns.

YRC Worldwide is also working to regain billions in revenue lost since 2006 by directly addressing customers' potential doubts with an ad campaign. This comes after YRC Worldwide completed a massive debt-for-equity swap that saved the transportation company from drowning at the very end of 2009.

On Dec. 31, after six deadline extensions, YRC Worldwide finally completed a debt-for-equity offer that saw noteholders tender $470 million in debt, representing approximately 88% of the company's outstanding notes. The exchange was a nightmare for existing YRC Worldwide shareholders, as the stock has plummeted nearly 80% since Nov. 2, when the exchange offer was first announced, due to the threat of dilution.

Immediately following the tender offer's completion, YRC's Chairman and CEO Bill Zollars said that with a restructured balance sheet and enhanced liquidity, the company could move forward with a more solid financial foundation. He reiterated those comments in an interview with Dow Jones Newswires earlier this month, adding that bankruptcy is "not on the radar screen" and that customers "are returning pretty aggressively."

In advertisements posted on YRC Worldwide's Insight promotional Web page, which were also featured in The Wall Street Journal and The New York Times, Zollars tells current and former customers that a healthy YRC Worldwide "is good for the industry and good for you, especially as the economy rebounds." Zollars was unavailable to speak with TheStreet.com for this article, the company said.

Some investors have taken the comments to heart. Even under the heavy weight of dilution fears, YRC Worldwide shares rebounded from an intraday low of 62 cents on Jan. 5 to an intraday high of $1.18 on Jan. 13. Volume during that time was well above the average daily share volume YRC Worldwide usually experiences.

But optimism alone may not be enough to carry shares much higher, as most penny stock investors know. While the debt swap eased fears that bankruptcy reorganization was imminent, YRC Worldwide isn't completely out of the woods yet. Liquidity remains a major concern for investors, as the company has a credit line with $163 million of cash and cash equivalents to make it through the current quarter, which is seasonally weak after the holidays.

BB&T Capital Markets analysts argue that YRC Worldwide still has an uphill battle. The company will need to raise either unsecured debt or equity to pay off $30 million of the non-tendered portion of the notes due March 1 and $15 million on April 15, they note.

In addition, YRC needs to settle a pension situation with the Chicago Teamsters. Until then, even if a bulk of its customers adopt a "wait and see" approach, it may not be enough to return YRC Worldwide to earnings before interest and taxes neutral, let alone positive, they argue.

"To stabilize results and remove the constant source of rumors and speculation, we believe YRC Worldwide needs to raise at least $250 million to $300 million of cash before the first quarter of 2010 is completed," BB&T analyst Thom Albrecht wrote in a research note earlier this month. "This would get the company through the seasonally weakest time of the year and cover a sizeable cash burn past the middle part of 2010."

But given that YRC Worldwide is not making payments on its senior, secured bank debt, Albrecht argues that the transportation company's ability to raise unsecured debt will be "exceedingly difficult. In addition, raising equity and diluting the new shareholder base will not be easy either," he adds.

That isn't to say that YRC Worldwide can't once again be a long-term play for investors. But even the most bullish investors can't deny that YRC Worldwide has been the punching bag of short traders operating on the belief the company wouldn't solve its liquidity problems. As of Dec. 31, when the debt-exchange offer was completed, shares sold short as a percentage of the company's float was a whopping 58.2%.

In addition, it appears Goldman Sachs ( GS) and other institutions were content with allowing the exchange offer to fail in order to enjoy a payout on credit-default swaps. That is, until Teamsters General President James Hoffa stepped in with the threat of protests.

YRC Worldwide hasn't shown investors much in terms of financial performance, either. The company has reported 12 straight quarters of declining revenue on a year-over-year basis and five consecutive quarterly losses.

For the quarter ended Sept. 30, YRC Worldwide said revenue plummeted 45.1% from a year ago to $1.3 billion as national and regional total shipments dropped 39.9% and 22.7%, respectively. While YRC may be able to navigate through a short-term deterioration in revenue, coping with it over the long-term may prove extremely difficult.

All of this has lead most analysts covering the stock to offer cautious views about YRC Worldwide's future. Morgan Keegan analysts argue that "ultimately the fate of this story hinges on an economic recovery, which may not prove to be as meaningful as some expect and thus limiting the company's viability over the next several months."

With the financing in place, Longbow Research analyst Lee Klaskow expects to see some stabilizing of its customer base and could see some shippers come back to YRC Worldwide, although the firm will "continue to avoid the shares while the company restructures itself."

Deutsche Bank analysts were also tentative on YRC Worldwide's prospects going forward. "Following its successful tender offer, YRC Worldwide will need to convince customers to return as the company likely experienced further tonnage erosion due to concerns over the company's ability to successfully completed the tender, which may have accelerated the company's cash burn in the fourth quarter."

Zollars, in one promotional ad, chastises market participants who may have written YRC Worldwide's epitaph prematurely.

"We appreciate the confidence you have placed in us," Zollars said in his address to YRC's customer base, "despite what I believe to be irresponsible and unprofessional comments made by some in the marketplace.

"As much as our competitors would like for us to go away, we're not going away," the CEO added. But only time will tell if Yellow can stay on the road to recovery.

-- Written by Robert Holmes in Boston.

Follow Robert Holmes on Twitter and become a fan of TheStreet.com on Facebook.


Please note that due to factors including low market capitalization and/or insufficient public float, we consider YRC Worldwide to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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