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YRC Worldwide Improves in 4Q10

YRCW CNW

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YRC Worldwide Inc. (YRCW - Snapshot Report) reported better-than-expected fourth quarter 2010 financial results. Quarterly GAAP net income from continuing operations was $27.9 million or 60 cents per share, compared with net income of $108.3 million (including $120 million of tax benefit) or $38.5 in the year-ago quarter.

YRC Worldwide received a $52 million benefit from an income tax settlement. Excluding this, the company lost 51 cents per share in the quarter, which significantly narrowed the Zacks Consensus Estimate at a loss of $1.36.

Quarterly operating revenues were $1,091.6 million, up nearly 4% year over year and also ahead of the Zacks Consensus Estimate of $1,066 million. This was primarily attributable to massive growth at the YRC Regional Transportation segment.

Quarterly consolidated operating expense was $1,118.4 million, down 2% year over year. Operating loss in fourth quarter 2010 was $26.8 million compared with $90.8 million in the year-ago quarter.  Operating ratio was 101.7% compared with 108.2% last year. Fourth quarter adjusted EBITDA was $38.7 million, compared with a negative $16.5 million in the year-ago quarter.

During the fourth quarter, YRC Worldwide generated $10 million of cash from operations. For fiscal 2010, the company generated $1.1 million of cash for operations compared with a cash consumption of $378.3 million in fiscal 2009. Free cash flow in fiscal 2010 was a negative $18.5 million, compared with negative $415.6 million in fiscal 2009.

At the end of fiscal 2010, YRC Worldwide had $143 million of cash & cash equivalents, compared with $97.8 million at the end of fiscal 2009. Total debt at the end of fiscal 2010 was nearly $1,060.1 million, compared with $1,132.9 million at the end of fiscal 2009.

YRC National Transportation Segment

Quarterly operating revenues were $725.1 million, down 2.5% year over year. Operating loss was $26.2 million, compared with an operating loss of $81.5 million in the prior-year quarter. Fourth quarter 2010 operating ratio was 103.6%, compared with 111% in the year-ago quarter.

YRC Regional Transportation Segment

Quarterly operating revenues were $339.1 million, up 16.6% year over year. Operating income was $4.8 million, compared with an operating loss of $4.5 million in the prior-year quarter. Fourth quarter 2010 operating ratio was 98.6% compared with 101.5% last year.

YRC Truckload Segment

Quarterly operating revenues were $25.7 million, down 11.2% year over year. Operating loss was nearly $3.2 million, compared with an operating loss of $2.7 million in the prior-year quarter. Fourth quarter 2010 operating ratio was 112.6%, compared with 109.1% in the year-ago quarter.

Outlook

Based on continued operating momentum, the company expects to achieve positive adjusted EBITDA and be well within credit agreement financial covenants in the first quarter of 2011. For fiscal 2011, management expects gross capital expenditure in the range of $150 million to $175 million. Excess property sales are expected in the range of $40 million to $50 million. Non-union pension plan contribution will likely be around $30 million.

Recommendation

We maintain our long-term Neutral recommendation on YRC Worldwide. Nevertheless, we believe viability of YRC Worldwide depends on its profit generation ability, but unfortunately we do not expect the company to reach that stage any time soon. Therefore, YRC Worldwide currently holds a short-term Zacks #4 Rank (Sell). YRC Worldwide competes with Con-way Inc. (CNW - Snapshot Report).

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