YRCW Pursuing Recovery Plan – Analyst Blog

YRC Worldwide Inc. (YRCW), a leading provider of truck transportation throughout the world, recently announced that it has reached a tentative agreement with its largest labor union represented by the International Brotherhood of Teamsters, regarding restarting of employee pension contributions after assessing the company’s competitiveness and long-term growth prospects.

 

YRC Worldwide was hard hit by recession and last year, it was facing bankruptcy. During that critical situation, the company’s labor unions helped it by allowing two concessions to prevent bankruptcy filing. First, employees accepted a 15% salary reducing, and second, YRC Worldwide was granted an 18-month waiver of the company’s obligation to pay into employee pension funds.

 

The 18-month pension contribution waiver will come to an end on December 2010. The company desperately needs to renegotiate the agreement for more time failing which the company will face a severe liquidity crisis. During the second quarter 2010, YRC Worldwide saved $85 million in pension related expenses. Management has already stated that the company may not be able to immediately restart a monthly pension payment of around $30 million. In January 2011, the company’s pension liability will escalate to more than $300 million.

 

The company has stated the final decision will be taken after the approval from leadership committees for the International Brotherhood of Teamsters as well as from the YRC Worldwide broad. Both approvals are expected next week. After getting the approval, the agreement will be put for vote by Teamsters members. The company is expecting that all these processes will be completed by late October 2010.

 

Last August, YRC Worldwide completed the divestment of the majority of its YRC Logistics division to the private equity firm Austin Ventures. Gross proceed from the deal was $38.7 million. Out of this, YRCW received the initial proceeds of $33.6 million in cash. Divestment of Logistic unit is a part of management’s strategy to improve its sagging liquidity condition.

 

We maintain our long-term Neutral recommendation for YRC Worldwide. Currently it is a short-term Zacks #3 Rank (Hold) stock.