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Friday, October 27, 2006

I Would Not Own Green Eggs or Yellow Trucks

By William Trent, CFA of Stock Market Beat

We told you now is not the time to own a truck. Continuing the trend this earnings season, truck-owning YRC Worldwide (formerly known as Yellow) expects margins to be hurt by a slowdown in shipping.YRC Worldwide 3Q Profit Rises 12 Percent: Financial News - Yahoo! Finance
Transportation company YRC Worldwide Inc., whose brands include Yellow Transportation and Roadway, said Thursday its third-quarter profit rose 12 percent on lower expenses, as revenue edged up 3 percent.But the company issued a disappointing outlook, sending its shares down 41 cents to $38.79 in aftermarket trading. They closed up 39 cents at $39.20 in regular Nasdaq trading.

For the full year, YRC projects a profit of $5.45 to $5.55 per share on revenue of about $10 billion. In July the company had projected year earnings of $5.65 to $5.85 per share on revenue of $10 billion.

That is a $0.20 per share guidance reduction with just one quarter left in the year. Next year’s EPS could be $1.00 or more less than current estimates bake in. As we said before, trucks cost money even when they aren’t being used. As the economy slows, those companies like CH Robinson (CHRW) and Landstar (LSTR) that get their capacity from independent contractors on an as-needed basis have lower overhead expenses and remain profitable. If the economy slows much further, Yellow’s guidance reductions will be even larger. The author may hold a position in the securities discussed.

A current list of the author's holdings is available here.

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