(Adds analyst comment, target price reduction, updates stock action)
CHICAGO, Jan 2 (Reuters) - Trucker YRC Worldwide Inc (YRCW.O), said on Wednesday it expects to take fourth-quarter pretax charges of up to $800 million to reflect the declining value of acquisitions, sending its shares down 8 percent to their lowest level in more than nine years.
The noncash impairment charges between $700 million and $800 million would reflect current market conditions and mainly relate to the fair value of the former USF Corp, which YRC, North America’s largest trucking company, acquired in 2005. The remainder of the charges would relate to Roadway, which YRC bought in 2003.
After the announcement, investment bank R.W. Baird & Co cut its target price for YRC to $18 from $22, citing “ongoing concern over execution” but kept its “neutral” rating on the stock.
YRC is a less-than-truckload company, which consolidates small loads into a single truck.
Like the rest of the U.S. trucking sector, YRC has been hit since the third quarter of 2006 by weak freight volumes and intense price competition due to the housing sector slowdown, lackluster retail sales, falling auto sales and faltering U.S. economic growth.
YRC officials in a conference call with analysts after announcing the charges said they had seen no improvement in the economy or the less-than-truckload market in the fourth quarter.
“It’s not a good economic environment right now,” Chief Executive Officer Bill Zollars told analysts.
But while YRC has suffered with the rest of the sector, analysts have highlighted the company’s continuing struggle to integrate USF, which is a regional operator.
YRC officials on the conference call said that up to $650 million in charges would relate to a decline in estimated fair value for USF, with up to $150 million related to a reduction in the calculated fair values of USF and Roadway.
“Freight environment appears to be stable but at weak levels and with no signs of improvement,” Baird analyst Jon Langenfeld wrote in a research note. “Maintain Neutral rating as we continue to recommend avoiding the stock based on all-in valuation, but we recognize the stock would likely rebound once the trucking stocks move.”
The company said in a statement that the charges will not affect YRC’s cash flow or its ability to obtain financing, and will not change YRC’s outlook for these units.
The company stopped providing an earnings outlook for investors last year, citing economic uncertainty.
YRC said it is making progress in efforts to cut costs and improve its operations. Last month it reached a tentative agreement with the Teamsters union toward a new five-year labor contract.
Company officials said YRC was on track to complete a plan to cut $100 million in costs.
YRC shares were down $1.36 at $15.73 in midday trading on Nasdaq. YRC shares had reached a 52-week low of $15.87 on Nov. 21, down more than 64 percent from a 52-week high of $47.09 hit on Feb. 22.
The company is trading at 7.3 times estimated earnings, compared with a sector average of 17.3 times. (Reporting by Nick Carey and Nick Zieminski; Editing by Brian Moss/Mark Porter)