Hurricanes dampen YRC profits, but rivals ODFL, XPO stay high and dry

A late, unexpected victim of Hurricanes Harvey and Irma that slammed the southeastern United States was YRC Worldwide’s bottom line. 

Citing extraordinary extra costs due to the storms, YRC said net income in third quarter was $3 million compared to $13.9 million in third quarter 2016. Earnings before interest, debt, taxes and depreciation was $81.4 million in third quarter compared to $85.5 million in the prior year comparable quarter.

YRC continues its reinvestment in the business with $31.9 million in capital expenditures and new operating leases for revenue equipment with a capital value equivalent of $15.9 million, for a total of $47.8 million in the year-ago quarter.

YRC CEO James Welch said YRC expects to take delivery of more than 1,300 new tractors in fourth quarter 2017 and first quarter 2018, for a total of more than 3,700 just the beginning of 2015, which is an upgrade of approximately 25% of its fleet. YRC expects to also take delivery of more than 2,400 trailers in the fourth quarter 2017 and first quarter 2018 for a total of more than 7,300 since the start of 2015.

Welch said the hurricanes cost YRC in “the low double digit of millions range at YRC Freight.” YRC Freight’s average length of haul is 1255 miles and the storms resulted in YRC “having freight stacked up all over the entire country and in their network and how they had to gradually get it down to that area and the effort that it took to re-handle lot of freight or having to call over customer once it got there,” Welch said. It also resulted in YRC resorting to using expensive purchased subcontractor transportation, and lost revenue opportunities.

But noting the tight supply market, Welch said YRC is taking advantage of higher yields. “So with capacity tightening and other carriers pushing the yield button, it’s certainly been a good opportunity for us to do the same thing and more importantly take an opportunity to look at our freight mix on a continual basis,” he said.

Welch said he was “disappointed quite frankly with our productivities across all four of any companies,” added: “We just haven’t made the move there that we wanted to make, we thought we could make. Certainly not having the right mix of equipment at a time has hurt that.”

Consolidated operating ratio for third quarter of 96.8 was consistent with the third quarter 2016. The operating ratio at YRC Freight was 97.4 compared to 97.3 for the same period in 2016. The Regional segment's third quarter 2017 operating ratio was 95.4 compared to 95.1 a year ago.

Third quarter 2017 tonnage per day increased 0.7% at YRC Freight and 4% at the Regional segment compared to third quarter 2016.

At YRC Freight, including fuel surcharge, third quarter 2017 revenue per hundredweight increased 3.4% and revenue per shipment increased 3.8% when compared to the same period in 2016.  Excluding fuel surcharge, revenue per hundredweight increased 2.4% and revenue per shipment increased 2.8%.

At the Regional segment, including fuel surcharge, third quarter 2017 revenue per hundredweight increased 1.3% and revenue per shipment increased 4.1% when compared to the same period in 2016. Excluding fuel surcharge, revenue per hundredweight increased 0.3% and revenue per shipment increased by 3.2%.

As of September 30, 2017, YRC’s outstanding debt was $962.4 million, a decrease of $93 million compared to $1.055 billion as of September 30, 2016.

"Despite weather and operational challenges in the third quarter, YRC Freight continued to improve its revenue per hundredweight and reported its highest year-over-year percentage increase in nearly three years in addition to positive year-over-year tonnage per day for the fourth consecutive quarter," Welch said in a statement.

"Collectively, the Regional carriers reported their largest increase in year-over-year tonnage per day since the second quarter 2014.

In a conference call with analysts, Welch said between the current economic demand environment and the ongoing recovery efforts from the hurricanes, the economy continues to gain strength.

“We’re also excited about yield momentum, additional new revenue equipment, the change of operations at YRC Freight, and the investments we’re making in our operating companies P&D (pickup and delivery) and line haul systems,” he said. “We intend to stick with our strategy to improve price, freight mix and profitability.”

Veteran Stifel trucking analyst David Ross is somewhat optimistic on YRC because of the tight LTL operating environment. “Looking out to 2018, though, the LTL environment looks very positive for continued price and tonnage gains,” Ross said in a note to investors. “And if YRC can just string together a couple good quarters, the stock should trade much higher. YRC was trading around $13.58 at press time.

The hurricanes didn’t seem to bother LTL industry leader Old Dominion Freight Line. ODFL posted a 19.6 percent rise in net income to $102.3 million on an 11.5 percent jump in revenue to $2.44 billion in the third quarter, compared to $85.6 million earnings on $2.25 billion revenue in the year-ago quarter.

ODFL also set a company record with a sparking 81.2 OR in the third quarter. ODFL Vice Chairman and CEO David S. Congdon, cited the “strengthening” economy for the revenue growth and noted an “upward trend” in LTL pricing the latter half of the year.

“Hurricane Who-vy? Hurricane Ir-what?” veteran Stifel Inc Ross said in a note to investors. “ Winners don't make excuses, and Old Dominion just dropped a solid beat on the Street.”

Old Dominion continues to perform at the top of the industry with 99% on-time delivery and 0.2% cargo claims. “By not having to regularly go on `apology tours’, its salesforce can trust the new business won to be handled well and therefore spend most of its time hunting for new accounts,” Ross said. “Get that money, move that rate - while rates are moving higher.”

“We maintain that it is largely due to management's better understanding of the costs of its business that it can price fairly and gain share,” Ross said.

  Saia was another LTL affected by the storms.   Saia reported a 4.2 percent rise in net income to $14.4 million on revenue of $350 million, a 10.6% increase from the third quarter 2016. LTL Shipments and LTL tonnage per workday rose 3.1% and 3.6%, respectively, and LTL tevenue per hundredweight increased 8%. Saia improved its operating ratio by 20 basis points to 93.0%

“Third quarter operations were disrupted for a number of days by hurricanes Harvey and Irma.  We estimate that third quarter shipments and tonnage per workday growth would have been approximately 1% higher had the storms not occurred,” Saia President and CEO Rick O’Dell said.  “Saia also experienced higher than normal operating costs for routing freight around weather impacted areas,” O’Dell continued.

O’Dell said impact of the storms notwithstanding, it continues to see “strong demand and stable pricing” in its business.

XPO Logistics revenue of $3.89 billion for the quarter, compared with $3.71 billion for the same period in 2016. Revenue increased year-over-year by $305.1 million, excluding third quarter 2016 revenue of $131.8 million from the North American truckload unit divested last October.

Net income soared 300 percent to $57.5 million for the quarter compared with $13.8 million net income for the same period in 2016. “Our diversification program is yielding results,” XPO Chairman and CEO Brad Jacobs said in a statement.

Jacobs added XPO was “exploring acquisition opportunities that will augment this momentum.” XPO’s last major purchase was the former Con-way LTL units for $3 billion three years ago. XPO’s average load factor was up 2% year over year, causing Stifel trucking analyst John Larkin to note, “The company is driving heavier trucks a comparable distance and with less empty space, and for about the same per revenue per hundredweight.”