Is YRC Worldwide’s Debt in Line with Its Peers in 2017?
YRC Worldwide’s debt
In this part of the series, we’ll look at YRC Worldwide’s (YRCW) debt. On June 30, 2017, its total debt stood at $998.0 million. The debt included secured and unsecured CDA (contribution deferral agreement) notes, capital leases, and term loans. As of June 30, 2017, YRCW’s cash and cash equivalents were $215.2 million.
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At the end of 2016, the company saw its lowest debt levels since 2005. That same year, YRCW reduced its debt by $70.0 million. On the 2Q17 earnings call, the company said, “Since the end of 2013, we have improved our capital structure by reducing long-term debt by almost $400 million while reinvesting in the company.”
YRC Worldwide entered into a new debt agreement in 2Q17. As a result, the company expects its interest expenses to rise ~1.0% going forward.
Gross debt to adjusted EBITDA
YRC Worldwide uses the concept of adjusted EBITDA (earnings before interest, tax, depreciation, and amortization). It computes adjusted EBITDA by taking the sum of non-union pension settlement charges and other adjustments to the normal EBITDA. In 2Q17, adjusted EBITDA was $91.1 million compared to $91.4 million in the second quarter of 2016. In the first half of 2017, YRCW’s adjusted EBITDA fell 13.0% to $134.3 million, from $154.3 million in the first half of 2016.
YRC Freight’s 2Q17 adjusted EBITDA, which excludes gains and losses from property disposals, was $48.3 million against $43.9 million in 2Q16. YRCW’s Regional Transportation vertical posted adjusted EBITDA of $42.2 million in 2Q17 compared to $47.7 million in 2Q16. YRCW’s total debt-to-adjusted EBITDA ratio for 2Q17 was 3.61x compared to 3.32x in 2Q16.
Peers’ debt-to-EBITDA ratios
Below are the debt-to-EBITDA ratios of YRCW’s peers as of June 30, 2017:
- Old Dominion Freight Lines (ODFL): 0.15x
- United Parcel Service (UPS): 2.2x
- FedEx (FDX): 1.8x
- XPO Logistics (XPO): 4.2x
In spite of three big acquisitions in 2015, XPO was able to reduce its ratio to 4.2x from the 10.0x level early last year.
Investors interested in the transportation space can consider the SPDR S&P Transportation ETF (XTN). XTN holds 26.0% in major trucking companies and 13.0% in key US railroads.
Next, let’s look at YRC Worldwide’s 2Q17 operating margins.