Saturday, May 14, 2011

YRCW Still Losing Money Prior To Recapitalization

Teamsters and other YRCW employees may be scratching their heads by now, wondering why things haven't turned around at their LTL trucking company.  They lost "only" $102mm in Q1 2011, as opposed to losing $270mm in the same quarter a year ago.  That's not a turnaround.  It's a deeper hole. 

Let's do some simple math on how successful YRCW would have to be after the equity recapitalization to truly regain Wall Street's favor.  This company hasn't been financially healthy since 2006, when it made $276.6mm for an EPS of 4.82.  YRCW's EPS has been negative every year since then.  Read the Form 10-Ks yourself, just as I have done. YRCW currently has 47.6mm shares outstanding. Assuming that the dilution of current shareholders does not get any worse than 2.5%, the recap will create 1.9B shares outstanding.  If YRCW were to have as healthy a performance as its last positive year in 2006 when EPS was only a modest 4.82 . . . after the pending equity recap makes the denominator in its EPS explode . . . its net earnings would have to be almost $9.2 billion!  In other words, a company that's been losing money for the past four years would have to generate bottom-line profits that are more than twice as large as its 2010 top-line gross revenue of $4.3B.  That's what dilution does, folks; it makes the earnings mountain even harder to climb for a company that needs to make itself attractive to investors.   

YRCW's results this quarter included an increase of revenue per shipment of 3.3% yoy while shipment volume rose 6.3%.  In other words, volume delivered has to grow twice as fast as revenue to get YRCW's gross revenue up to whatever stratospheric level will generate a $9.2B profit.  I honestly don't think there's enough shipment volume or gross revenue in the entire trucking industry to allow that kind of a result for one company.  Ask the CEO if a quarterly improvement in yield of 1.8% will enable YRCW to singlehandedly earn every last dollar in the U.S. trucking industry. 

YRCW trades today at just over a buck, which is barely a tenth of of a percent of its adjusted closing price at the end of December 2006.  Look it up on Yahoo Finance yourself if you don't believe me.  The market is thus correctly pricing the probability of a YRCW turnaround. 

I do not know of any publicly-traded company in the world that has ever gone from near bankruptcy to complete possession of its industry.  Well, okay, maybe Apple Inc. (AAPL) pulled off something similar after Steve Jobs returned, but he's not running YRCW and AAPL thankfully isn't unionized.  Such a miraculous result is usually impossible in the real world.  I would never accuse any YRCW bulls of living in the real world.  I've done this math for those pumpers, touters, Teamsters, day traders, hedge fund quants, and other people who still hold out hope that YRCW will turn around.  Hope is not a method. 

Full disclosure:  No position in YRCW.  Ever.  Oh, yeah, no position in AAPL either.