Thursday, June 18, 2009

A Tale of Two Truckers

Bill Zollars used to be a media darling. A regular guest on CNBC, he prognosticated about all matters concerning American business. He had his finger on the pulse of the economy. He was connected, articulate, and the face of an industry. In fact, so often were his appearances, that one (me) wondered if he ever spent any time at his day job. That job: CEO of Yellow Roadway, one of the country's largest trucking companies.

A January 3, 2006 press release confirmed that Mr. Zollars was hard at work after all.

Yellow Roadway Corporation Announces Name Change to YRC Worldwide Inc. -- New Name Reflects the Global Breadth and Services Depth of the Company -- NASDAQ Stock Ticker Changes to 'YRCW'

For Zollars, this was a declaration of victory. This "new breadth and depth" was his creation, the result of a string of debt-fueled acquisitions that transformed Yellow into a conglomeration of trucking brands including Roadway and USF. I didn't understand. At least the Yellow Roadway name conveyed some information. But in a world where, Kentucky Fried Chicken becomes KFC and Dairy Queen is DQ, Zollars could not be left out. Thus, YRC Worldwide was born. And I sold my shares embarrassed that I owned them at all.

You see, Bill knows how to follow a trend. He played the game and for a while this well-dressed cheerleader was rewarded by Mr. Market. Cheap debt and rapid-fire acquisitions? Yes we can. Stupid name change? Yes we can!

At the time of the name change, YRC shares traded at $50 a share. With nearly 60 million shares outstanding, the market value of YRCW stood at a respectable $2.8 Billion.

Now, I have always thought that corporate name changes are a sign of trouble ahead. In the case of YRC, I could not have been more right. Today's stock price? $1.90 a share or a $110 million market value. Ouch.

This is a company with $9 Billion in annual revenues. But it is choking on debt. I lost count at a billion dollars and didn't even include the pension liabilities. As a matter of fact, YRC pledged land (in lieu of cash payments) to its pension funds today. There's a sign of success!

If the capital markets are allowed to work, YRC will probably go bankrupt. Hopefully, YRC will be "allowed" to go bankrupt. For a change, let's not reward failure.

There are responsible trucking outfits that deserve to capitalize on YRC's stupidity. Look no further than Arkansas Best Corporation, which trades under the ticker ABFS.

The company generated $1.8 Billion in 2008 sales, 20% of YRC's total, but enjoys a market value of nearly $800 million, nearly 8 times that of YRC. ABF has $200+ million in cash, less than $2 million in debt, and it even pays a dividend. What a concept!

None of this is a coincidence. Arkansas Best's Chairman of the Board, Robert A. Young III, owns 9% of the company, a stake that must have an influence on how the company is managed. In short, shareholder value is a priority. While Mr. Zollars piled on debt, ABF planned for a rainy day! No financial engineering at ABF, just people who know how to run a trucking company.

Arkansas Best probably isn't dramatically undervalued at the current quote, but it could be a takeover candidate. Nonetheless, the benefits of a conservative capital structure and smart management are clear. This is a company that thinks for itself. It will survive the current turmoil as a result. It avoided debt when "everybody" was "doin it" and its management teams seems to put a high premium on actually running the company. Oddly enough, I've never seen their CEO (Robert Davidson) on CNBC. And I don't care if he's a snappy dresser.

We all benefit when companies like Arkansas Best thrive and when companies like YRC disappear.

ABFS and YRCW are perfect illustrations of the disparity that exists in business. While YRC was sowing the seeds of its demise, ABF laid the groundwork for a better future.

I own stock in Arkansas Best and I pray the company never changes its stripes... Or its name!

2 comments:

  1. A great case study indeed. Another one that comes to mind: GM vs TM. I am bummed, however, to see an Overland Park, Kansas, based company in such shape.

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  2. I doubt Zollars ever went to Kansas... he's more at home in NYC

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