The Haiku of Finance for 02/28/25

Trade war stock picking

Find domestic trucking stocks

No cross-border hauls

The Haiku of Finance for 12/04/15

Trucks for Amazon
They carry more stuff than drones
"Last mile" runs on ground

The Haiku of Finance for 10/02/15

Last mile truck transport
Idle fleet adding expense
Local cost to move

The Haiku of Finance for 07/09/15

Squeezing supply chain

Idle truck fleets carry cost

Find cargo to roll

YRC Worldwide's Q2 2012 Loss Is Still A Loss

YRC Worldwide managed to survive another quarter of losing money.  Its most recent financial results show that the LTL trucker continues to post negative net income despite its first operating profit since its debt restructuring.  There's a lesson here for CFOs.  Losses per share can be dressed up as an improvement through the issuance of massively diluted new shares.

Meanwhile, the more ominous news for the company is the 0.5% decline in top-line revenue.  This could imply that YRCW's much-ballyhooed market position may be eroding.  The increase in revenue per hundredweight is odd, something normally associated with a firm that can maintain its pricing power.  I'm not sure which customers still insist on paying a premium for a fat, smelly, Teamster driver to give them an attitude.  Those customers are welcome to contact me to explain their reasoning.

Full disclosure:  No position in YRCW, ever.

YRC Worldwide (YRCW) Worse Off Than Ever

Poor, pathetic YRC Worldwide (YRCW).  No number of out-of-court restructurings can change its miserable circumstances.  Its credit default swaps are priced at an 87% chance of bankruptcy, worse than Greece's swaps just prior to its latest EU bailout.  The company's leadership remains unrealistically confident in its ability to reset its debt covenants even though it incurs more new debt to pay its old debt.  The company's chief accountant has thrown in the towel.  The CFO of YRC's freight arm has also departed.

Look at the last four quarters' worth of financial statements.  Revenue at the end of 2011 was about where it was a year prior but net income is still negative.  Retained earnings is even farther in the hole.  Free cash flow is still negative.  I guess even cutting back on break room donuts isn't helping where it counts financially.

It's hard to say which YRCW constituency is the dumbest:  the executives running the place, the Teamsters who think it will turn around, or the creditors who keep agreeing to debt restructures.  I'd like the creditors to explain just what assets they expect to recover from the company in the event it finally expires.  Please note that unemployed Teamsters do not count as assets.

Full disclosure:  No position in YRCW, ever.

The Haiku of Finance for 12/22/11

Truck tonnage slow rise
All that slow steaming caught up
Looser supply chains

Getting More Bearish On YRCW Is Now Impossible

That headline is not an attempt at reverse psychology.  Today I decided to find out whether I could either short shares of YRC Worldwide or buy puts to bet on further price declines.  Borrowing shares to short through my brokerage proved impossible; I would probably need some kind of special connection directly to a market-making specialist firm to make it happen.  My brokerage's order system wouldn't let me buy puts, not even ones out to the farthest expiration date.  I found that odd as those puts have clearly visible ask prices.

It is now technically impossible for those bearish on YRCW's prospects to get any more bearish using widely available financial instruments.  Check out the existing short interest on the stock.  There are 59M short shares against an outstanding share count of 6.8M.  The overwhelming short interest has maxed out the market's ability to accommodate investor interest.  That should be unsurprising for a company with an EPS of -$720.  That is a remarkably negative achievement.  Think about how far in the hole a company would have to be with results so poor, and so obvious.

I should have shorted this stock in early 2010.  Sometimes waiting for easy money makes me wait too long.

Full disclosure:  No position in YRCW/YRCWD at this time.  

YRCW Unloads Truckload Unit While Truckload Demand Rises

YRC Worldwide continues to compound its material weaknesses.  This Teamster-dominated company is selling off a truckload unit to focus on what it claims to do best - LTL.  The problem with this move is that YRCW simply hasn't been doing LTL very well at all.  The company's financial results speak for themselves. 

The company's Dec. 2 reverse split briefly raised the share price to avoid a delisting action.  That share price has dropped by over 24% since then because the company lost almost three times as much money in Q3 of this year as it did in Q2.  That Q3 loss is twice as large as the loss in the same quarter in 2010.

Divesting a truckload unit is exceedingly dumb given strong demand for truckload volumes in recent weeks. Maybe handling truckload freight really is too difficult for Teamsters. It would require them to drive non-stop for long hauls, whereas frequent LTL stops for load reconfiguration give them opportunities for more coffee and donut breaks while on the clock. 

This company's string of losses and odd strategic decisions continues unabated.   The reverse split has delivered bearish investors a unique opportunity to profit by temporarily raising the price out of penny stock territory.  This may prove to be a fleeting window to sell short outright or buy put options in anticipation of further share price declines.  That's not investment advice in any way; rather, it's a disclosure of strategic options under consideration here at Alfidi Capital.

Full disclosure:  No position in YRCW at this time, but seriously considering opening a short position within the next three business days.  Watch this space for a final decision. 

The Haiku of Finance for 11/09/11

LTL rates rise
Good luck controlling your costs
Some truckers will stall

YRCW Restructuring Complete, And Completely Pointless

My prediction from May that YRCW's stock wouldn't be worth a nickel after its restructuring is proving to be accurate.  Today the shares in this soon-to-be-delisted LTL trucker closed at $0.07.  A stock under a buck doesn't stay on an exchange for long.  Delisting will drop it even further as major institutional holders exit their positions.  Big players don't touch penny stocks listed OTC. 

The restructuring leaves existing shareholders with almost nothing.  Teamsters now own 25% of a failing company.  They should take firm delivery of their share certificates so they have enough to use as wallpaper at home in the event of Chapter 7.  Day traders and undercapitalized hedge funds now have an extra 300mm shares with which to waste time during market hours. 

The Wall Street analysts covering this turkey weren't as accurate as me.  Four firms actually upgraded their estimates of this stock in 2008 and 2009 while I've remained consistently bearish.  The analyst community's specific estimates of revenue and earnings have been so far off as to be meaningless.  The only estimate that matters IMHO is a calculation of intrinsic value at any given time based on a decade of performance.  That's why accuracy means far more than precision in estimation; accuracy gets it "about right" while precision runs the risk of getting it "exactly wrong." Human-driven events like market action can never be as precisely measured as engineering concepts.

I had it right all along.  Congratulate me any time. 

Full disclosure:  I never had any position at all in YRCW at any time. 

The Limerick of Finance for 08/21/11

YRC Worldwide shares must dilute
Multiplying by billions to boot
Shareholders will frown
When this stock price breaks down
Teamsters think they'll run off with some loot

COO Gone At YRCW

Another exec bails out at troubled YRCW.  The COO's job in a nutshell is to make the trucks run on time.  Maybe he got sick of listening to Teamsters whine about having to actually do some work for a change. 

Hey, YRCW, I'm available to act as interim COO.  My first order of business when hired will be to shut down the union-heavy divisions and transfer as much traffic as possible to the USF Reddaway units (or to whichever low-cost, non-union parts of the company still exist).  If that's a non-starter, I'd start farming out "last mile" deliveries to local owner-operators and start furloughing Teamsters.  Most recent hires get the first pink slips.  Bring on the DOL complaints.  That's my Hail Mary plan to salvage as much shareholder value as possible before the recap leaves them almost penniless. 

I drove past a former YRC Worldwide terminal here in San Francisco a few weeks ago.  It looked pretty run down and I don't feel like guessing how long it's been unoccupied.  The whole darn company will look that way pretty soon if it can't get rid of the union culture that's eating it alive.

Full disclosure:  No position in YRCW at this time or any other time. 

Analyst Community Divided on YRCW? Amazing!

Wall Street's permanent bullishness even extends to companies that consistently lose money.  YRCW's problems are so bad that analysts have to grasp at ephemeral straws to have something to write about.  Note that the analyst community acknowledges the horrendous dilution and cash problems but some folks still want to reach for things like revenue that beats estimates.  My readers can be forgiven for not knowing analyst tricks like lowering one's revenue estimate so that even disappointing news can beat it. 

Equity analysts still looking for a bull case on YRCW all know the following.  S&P has just downgraded the company's credit rating to "selective default."  Credit analysts know that the recap is forced.  The company is planning another reverse stock split, obviously an effort to avoid de-listing immediately after the recap dilutes its share price to under a nickel.  Any speculator hanging on for dear life right now is going to end up with a tiny sliver of nothing in a few weeks.  The entire LTL sector knows the cost of culling unprofitable customers and routes.  YRCW's forced sales of distribution centers will drive their network disruption costs even higher at a time when it needs to keep operating costs low. 

Analysts write for a living.  In the face of overwhelmingly negative facts, some i-banks must think they can finagle future business out of troubled companies by playing up whatever small turnaround chance exists.  I-bankers should note that YRCW has likely executed its final restructuring.  The only business they can squeeze out of this company would be more asset sales (like a spinoff of its China unit, a totally unnecessary acquisition if there ever was one).

Full disclosure:  No position in YRCW at this time or any other time. 

YRCW Fantasizes About H2 Operating Profit

YRCW likes to send out very optimistic forecasts just before it announces that it's still losing money.  The company stays in that groove with its estimate that it will soon turn a profit of $4.2mm on revenue of $4.9B.  Mind you, that's merely a figure for the second half of 2011 because they still plan to lose money on an annual basis.  This is a bet on continually rising tonnage and rates.  Don't tell management how unrealistic that is with the price of fuel on the upswing again after a brief period of relief. 

Here are some even more unrealistic assumptions YRCW can figure into its turnaround plan. 

- They can buy unicorns to haul freight.  I hear they're cheaper than trucks and less trouble to maintain  provided Teamsters clean up after them. 

- They can relocate their trucking centers to the Moon.  Lower gravity means trucks can carry more mass and even get away with more height with no restrictions. 

- They can fire their Teamster workforce and hire brand new high school graduates in their place.  Their labor costs will be lower and the I.Q. of the workforce will skyrocket. 

None of the above ideas are on the table in the YRCW boardroom but that's okay.  The stock is going to massively dilute this month anyway and nothing can stop it. 

Full disclosure:  No position in YRCW.  No unicorns were harmed in the creation of this blog post. 

LTL Rate Hikes Become Self-Fulfilling Prophecy

The mainstream analyst community gets it almost right on the upward trend in LTL trucking freight rates.  Sure, it's easy to forecast freight rate hikes when an industry leader like UPS raises its rates by 6.9%.  It's intriguing to note that competitor ABF Freight Systems just raised its rates by the exact same amount.  I disagree with the analyst community consensus that rate increases are due to tightening capacity.  They're missing a few things. 

In ABFS's case, the UPS rate increase gives them the cover they need to try to return to profitability.  ABFS has had negative net income since 2009 and this rate increase may be their best shot at a positive quarter for a while.  The U.S. trucking industry as a whole will soon feel the effects of a slowdown in goods orders; read my last blog post on shipping for a prelude of what's coming.  LTL truckers who raise rates are trying to squeeze whatever extra dollars they can out of this economy before GDP growth slows markedly in Q3 2011.  I can't say I blame them. 

Full disclosure:  No position in UPS or ABFS. 

YRCW Coverage Dropping Like . . . Flies On A Unionized Truck

Publicly traded companies like the attention they get from research analysts who give them formal coverage.  The thing is, you have to be a solidly profitable company with a bright future to warrant coverage.  Sadly, YRC Worldwide no longer meets that description, which is why research coverage of the firm is drying up.  Don't worry, YRCW, I'm still tracking your every move. 

Maybe the Teamster monthly newsletter can initiate coverage of the stock.  The union is already giving it a shot with media puff pieces, but they need to try harder for Wall Street to take them seriously.  The union would first have to find members eager to put down the donut box long enough to pick up a YRCW annual report.  They'd also have to start reading the business section of the daily paper instead of the comics page so they can understand why lame stocks like YRCW can experience a massive one-day run based on nothing at all. 

Here's my theory as to how this trading anomaly may have occurred.  Perhaps some hedge fund algorithm mined the market for low-priced stocks with an extremely high short interest (over 20% of float for YRCW right now).  Then maybe the fund took outsized positions in YRCW options (which surged over 1200%) in the hope of driving a short squeeze that would force up the share price for some quick gains.  Come on, I'm just guessing here.  I don't have time to look for confirmation of large institutional long positions placed into YRCW or its options chains this week, but it's just fun to wonder which hedge fund on Wall Street is dumb enough to play this game.  If Teamsters really want to be taken seriously on Wall Street, they should start their own hedge fund and try to come up with even dumber trading strategies.  It's not hard at all to be dumber than the Street. 

Full disclosure:  No position in YRCW.

Something's Gotta Give In Container Sizes

One shipping company can start an industrywide trend with a push for something different, or it can doom itself with a strategic misstep.  APL Logistics is pushing ahead with plans to field more 53-foot shipping containers simply because they match well with U.S. truck configurations.  The problem is that U.S. trucks are the only leg of the global transportation system that is out of step with global container standards. 

The intermodal industry is built around the twenty-foot equivalent unit (TEU), a decades-old measure of container traffic that relates directly to the size of a standard oceangoing container.  One retailer complains that the 53-foot box makes transloading easier.  They may be a lonely voice in the sector.  Their distribution model is built around cheap Asian imports flowing from West Coast ports to East Coast markets.  There is no guarantee that model is sustainable if rising energy costs make Asian imports more expensive. 

Do longer containers pose problems for infrastructure in some places?  State highway planners will have to think of new routes for extra-long trucks.  Longer routes will add to shipping time and costs.  LTL truckers and railroads are used to the TEU standard.  Forcing them to change will force them to think about dropping some shippers as customers. 

Even APL admits that only a small part of its fleet can handle 53-foot containers.  Committing to newbuilds that can stack configurations other than the TEU will drive up per-ship costs as the shipbuilding industry adjusts to boutique requirements.  Even analysts won't be happy with this move, because they'll have to adjust their traffic calculations to equate cargo volumes carried by two different configuration standards. 

Betting against the TEU configuration is probably a bad idea.  It reminds me of the U.S.'s refusal to adopt the metric system for weights and measures, which adds to the administrative costs of foreign manufacturers who want to ship goods here.  Retailers who think their buying power will force carriers to adopt a new container standard assume the rest of the world will adjust.  The world is pricing in the end of American dominance in more ways than we know. 

YRCW Teamsters Scrape Out Pension Contributions After All

So this is what the fuss was all about.  YRCW is still losing money and yet resumes contributions to the Teamsters' pension plan instead of focusing its cash on operations.  Contributing $21mm per quarter is a meaningful chunk of the company's current burn rate and is precisely 21% of the new capital they are supposed to arrange from restructuring their debt.  The Teamsters never took their eyes off the prize; by agreeing to a debt restructuring, they ensured they would be able to further pillage the company of cash while it continues to spiral down the tubes.  Greed wins again. 

If the company had chosen to file for bankruptcy months ago, it could have torn up that horrendous agreement with the Teamsters and start fresh with a new agreement giving them exactly zero pension contributions.  That is now a missed opportunity and YRCW's other creditors will be poorer for it. Trucking companies with their eyes open can now see exactly what happens when union members get board seats.  The unionized workforce will always put its own needs ahead of the company's, even at the risk of their employer's survival.  Heads up, Arkansas Best (ABFS) . . . you could be next.

Full disclosure:  No position in YRCW or ABFS.  I have better places to put my capital to work than in unionized companies. 

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.