Article written by John D. Schulz
The first economic shock waves of the COVID-19 pandemic have started to wash across the first quarter earnings reports of the leading publicly held less-than-truckload (LTL) carriers, with more bad news coming later in the year.
The first economic shock waves of the COVID-19 pandemic have started to wash across the first quarter earnings reports of the leading publicly held less-than-truckload (LTL) carriers, with more bad news coming later in the year.
It took asset sales of $39.3 million to help swing YRC Worldwide, parent of long-haul YRC Freight and three regional subsidiaries that combined are the second-largest less-than-truckload (LTL) operators nationally, into profitability in the first quarter.
But even with those asset sales putting YRC in the black, at least one major trucking analyst was downbeat on YRC’s financial outlook. Dave Ross, analyst for Stifel Inc., said the second quarter would be a “make or break” period for YRC.
“At this point, we believe it’s dependent on two things — a) U.S. government assistance in the form of a grant to cover payroll, healthcare, and/or other expenses, and b) how quickly volume returns, as the economy re-opens this month,” Ross said in a note to investors. “If we don’t get any good news in the next 30 days, we would not be surprised to see a wind down of operations on or before July 4th weekend.”
Counting its asset sales, YRC earned $4.3 million on $1.15 billion revenue in the first quarter, compared with a net loss of $49.1 million on $1.18 billion revenue in the year-ago quarter. Without the asset sales, however, YRC would have suffered a $35 million pre-tax loss. All its LTL segments that previously were reporting under two separate segments, YRC Freight and Regional, have been consolidated for financial purposes.
“Despite the COVID-19 pandemic and ensuing economic fallout during the first quarter of this year, we have continued our enterprise transformation efforts, working toward our vision of combining the power of our five brands into one network and one enterprise-wide service offering,” YRC CEO Darren Hawkins said in a statement.
Hawkins said as YRC management realized the seriousness and severity of the pandemic’s impact on the economy and the LTL industry, it took immediate and swift liquidity preservation actions. These included:
- working with lenders to secure an amendment waiving its minimum Adjusted EBITDA covenant for every quarter this year. That will convert the vast majority of the cash interest payments due in the first half of the year into “non-cash payable-in-kind,” YRC said;
- making appropriate adjustments to its cost structure such as elimination of executive bonuses and merit increases, employee furloughs and cessation of discretionary spend items; and
- implementing additional liquidity preservation measures “as appropriate under the circumstances,” the company said.
“Our nation has never depended more on our 30,000 employees than it does today,” Hawkins said. “YRCW and our family of companies are vital to the nation’s supply chain and a critical partner to over 200,000 customers as well as several U.S. government agencies, he added. “I have always been proud of our employees, but today is like none other in my career,” Hawkins added. “I stand in awe of their dedication and resilience to deliver essential goods, and as the nation gets back to business, our employees will continue to be there to help put America on the road to recovery.”
As for financials on a non-GAAP basis, YRC generated consolidated Adjusted EBITDA of $34.1 million in the first quarter, compared to $30.1 million in the prior year comparable quarter Full-year consolidated Adjusted EBITDA was $214.6 million compared to $292.2 million in 2019.
YRC’s consolidated first quarter LTL revenue per hundredweight including fuel surcharge decreased 4.2%. But, inversely, weight per shipment increased 3.9% for the quarter resulting in LTL revenue per shipment decrease of just 0.4% when compared to the same period in 2019.
Excluding fuel surcharge, LTL revenue per hundredweight was down 4.0% and LTL revenue per shipment was essentially flat. Consolidated operating ratio for the 1Q20 was 97.6 compared to 102.7 in 1Q19, the company said.
As for liquidity, YRC said based on current expectations and in conjunction with the COVID-19 pandemic, “We think it will be unlikely that we be in compliance with the Adjusted EBITDA covenant when it becomes applicable again at the end of first quarter of 2021 or possibly the liquidity covenant required by the amendment to our term loan facility over the specified period that covenant is applicable.’
As a result, Hawkins added, “We will need to either seek an extension of the waiver period or otherwise modify the covenant.”
In an odd twist, YRC cited a “tremendous amount of uncertainty surrounding COVID-19 and the rapidly changing environment,” management excluded questions from analysts on its quarterly earnings call to investors and others.
In other top LTL earnings reports, ArcBest, parent of ABF Freight System, the nation’s seventh-largest LTL company, said it was not overly affected by the coronavirus until very late in the quarter. In fact, Judy R. McReynolds, Chairman, President and CEO of ArcBest, said it was “one of the best first quarters” in the company’s history.
Specifically, ArcBest reported first quarter revenue of $701.4 million compared to first quarter 2019 revenue of $711.8 million. First quarter 2020 operating income was $7.8 million compared to operating income of $8.6 million in the same period last year. Net income was $1.9 million or compared to first quarter 2019 net income of $4.9 million.
At its ABF unit and other asset-related business, ArcBest said it posted revenue $515.7 million compared to $506.1 million, a per-day increase of 0.3 percent. Operating income was $13.2 million and an operating ratio of 97.4 percent compared to the prior year quarter operating income of $13.6 million and an operating ratio of 97.3 percent.
Total billed revenue per hundredweight decreased 4.3 percent and was negatively impacted by lower fuel surcharges versus prior year. Excluding fuel surcharge, the percentage increase on LTL-rated freight was in the low-single digits.
“The effects of the coronavirus pandemic began impacting our customers’ businesses in late March,” McReynolds said.
Analysts agreed. “While 1Q was much better than feared, we’re not sure that 1Q strength is sustainable as revenue trends have fallen off sharply,” Wolfe Research said in a note to investors.
Old Dominion Freight Line, the nation’s second-largest LTL, reported what CEO Greg Gantt called “solid” results in the first quarter. Specifically, ODFL earned $133.2 million net income on revenue of $987.4 million revenue, essentially the same figures posted in the year-ago first quarter. Revenue was 0.3% lower than the year-ago numbers while net profit declined a scant 0.1%.
ODFL did improve its industry-best operating ratio by 60 basis points to post an 81.6 OR, compared to an 82.0 OR in the year-ago quarter.
“We were pleased to improve our operating ratio and increase earnings per diluted share despite the slight decrease in revenue,” Gantt said in a statement. “While revenue was lower, our results for most of the first quarter were in line with the expectations we had at the beginning of 2020. Demand for our services declined in the last half of March, however, due to the widespread effects of the COVID‑19 pandemic on the domestic economy.”
Original Source: https://www.logisticsmgmt.com/article/covid_19_sends_ripples_through_top_public_ltl_carriers_in_first_quarter