Still Neutral on YRC Worldwide

YRC Worldwide Inc. ( YRCW - Snapshot Report ) is currently in a mess as the company already received a delisting notice from NASDAQ due to its extremely low valuation. Although YRC Worldwide’s second-quarter 2011 financial results beat the Zacks Consensus Estimates, its net loss actually increased by more than 300% year over year.

During the last three years, the company has been reeling under the threat of bankruptcy resulting from a significant fall in its freight volume coupled with its highly leveraged balance sheet. Consequently, the stock price plummeted by a massive 99% last year.

The company’s viability depends on its ability to become profitable but unfortunately we do not expect it to reach that stage any time soon. In January 2011, YRC Worldwide closed 40 terminals due to low freight volume. This closure will affect 12% of the company’s total 334 facilities.

The company is facing major challenges including sustaining liquidity, dilution of preferred stock, loss of customers and a competitive LTL (less than truckload) market. Trucking industry remains highly competitive. YRC Worldwide is gradually losing market share to its competitors such as Arkansas Best Corp. ( ABFS - Snapshot Report ) , Con-way Inc. ( CNW - Snapshot Report ) , and Knight Transportation Inc. ( KNX - Snapshot Report ) .

The company is trying to deter the imminent financial collapse in every possible way. Despite prudent moves to manage liquidity, we believe YRC Worldwide must stop cash consumption for operations. In our view, the company’s near-term bankruptcy risks still persist.

Of late, management has taken some measures such as an aggressive pricing strategy and emission control to streamline its operations. We reaffirm our long-term Neutral recommendation on YRC Worldwide.