NASDAQ: YRCW 3/21/2013 Turner Novak Eric Graverson NYSE: UPS
NASDAQ: YRCW
3/21/2013Turner NovakEric Graverson
NYSE: UPS
Proposal
• Sell 47.359 shares of UPS @ 83.00• Originally bought for $71.52 per share• 8.527% of portfolio
• Buy 300 shares of YRCW @ $8.62 • $2,586• 5.60% of portfolio
Overview of UPS
• Global transportation company• Involved in the LTL business with YRC• Main competitor is FedEx and the US Postal
Service
IPO’s Ownership TimeframeIPO’S
Entry Point
Reasons to Sell UPS
• Realize our 19% gain• US Postal Service will keep Saturday deliveries– Lost an opportunity for UPS to steal market share
• Opportunity cost– YRCW is a better opportunity in the same industry
SELL! SELL! SELL!
YRC Overview
• Founded in 1924• Overland Park, KS• 32,000 Employees
• 4th largest LTL Carrier by Revenue• Customers include Wal-Mart,
Perrigo, and large manufacturers• Ships freight for companies that
lead the U.S. economic recovery
YRC Over the Past 18 Months
Less-Than-Truckload (LTL)• Ships product from
Point A, to Point B, to Point C, to Point D
• Product is transferred at each terminal
Truckload (TL)• Ships product from
Point A to Point B
Trucking Industry
YRC is an LTL Carrier
TURNER’S HOMELAND!
Industry Comparison
• Undervalued compared to the industry• Financial liquidity is near industry average• Institutions are selling, insiders are buying
Industry Comparison
• Why are the total NET Assets (Assets – Debt) worth 10 times more than the total value of the company?
• Cash and earnings from operations worth over 2 times more than the value of the company?
YRC in the Past
• Revenues dropped from $9.6B to $4.8B• Net Income dropped from $275M to - $140M• Known for poor customer service
Revenue USD (Billions) Last 6 Years
• Industry leader in 2007• Revenue decreased during recession• 3rd in 2012
Net Income USD (Million) Last 7 Years
• Industry leader in 2007• Last in 2012• Room to improve in cutting costs
• The market thinks YRC will fail
• We don’t blame them
• But here is why they are wrong
FAIL!!!
YRC in the Future
• Cutting costs– Consolidating terminals– Reducing workforce
• Restructuring executive management team
• Improving customer service– Intensive training
Net Income USD (Million)
• Is YRC finally turning the corner?• How will they get there?
YRC in the Future• Hired consulting firm MAVEA to help turn
around the company• CEO of MAVEA, Larry Wilson, bought shares
of YRC a few weeks before the contract was signed
• Larry Wilson is also on the Board of Directors of another company that has seen a 50%+ increase in share price during its turnaround, Yahoo
Earnings Call Takeaways
• Beat analysts estimates for the first time in 4 years
• Positive operating income for the first time in 6 years
Earnings Call Takeaways
• Verbal offers to lease almost 100% of revenue equipment purchases in 2013– Operating leases– Decrease in CapEx, increase in FCF
• New company culture to reduce workers compensation claims (injuries on the job)– Injury frequency improved by 20%
• Reducing work force to improve efficiency
Total Assets
Operating Income
EBITDA Margin
Gross Margin
Revenue
Earnings Call Takeaways
• New management team– Marketing and sales focused– Sales and operations driven
• Decreased cargo claims ratios by focusing on better freight handling
Balance Sheet
• Convertible Bonds when stock price hits $14 and $36
• Will lower Interest Expense if converted, which will raise EBITDA, but also dilute shares
• Neutral effect on EPS
News
• WalMart named YRC the LTL carrier of the year• Announced job cuts of almost 500 employees
on Monday– Price jumped 15% that day
• Trading volume trending upwards• Will analysts raise price targets?
As the Risk goes downthe Price will go up
Risks
• Earnings don’t increase like we are projecting• Share dilution• US economy does not recover, which is driving
growth in the trucking industry
• Backbone of the U.S. economy• Very undervalued with 0.08 P/B– Failure is priced into the stock
• IPO needs to take on more risk than just UPS, Home Depot, etc.
• High risk, high reward
Investment Thesis
BUY! BUY! BUY!
Proposal
• Sell 47.359 shares of UPS @ 83.00• Originally bought for $71.52 per share• 8.527% of portfolio
• Buy 300 shares of YRCW @ $8.62 • $2,586• 5.60% of portfolio