In this era of high CEO turnover, Bill Zollars defies the odds. The chief executive of YRC Worldwide signed a five-year contract extension in January that would stretch his tenure as head of the $8.7 billion-in-revenues trucking company to nearly 11 years -- quite a feat in today’s business world.
But Zollars, who joined Yellow Corp. (as YRC was then known) from transportation outfit Ryder System in 1996 and became CEO three years later, may have some work to do before investors are as happy with the company’s performance as Zollars’ board appears to be.
YRC, which specializes in less-than-truckload shipments, has grown substantially under Zollars by making acquisitions. In December 2003 it bought archrival Roadway Corp. for $966 million; more recently, in May, YRC acquired USF Corp., a specialist in regional deliveries, for $1.37 billion.
His hands-off approach to absorbing acquisitions -- all are run as separate units -- has made him popular with employees who have escaped layoffs and with customers who have avoided red tape. But it has frustrated investors who had hoped that YRC would more aggressively cut costs after acquiring Roadway and USF.
Their dismay shows in YRC’s price-earnings ratio of 7.7 times projected 2006 profits, compared with multiples of 12 to 14 for competitors. YRC’s share price today, about $47, is the same as it was in late 2004. That’s despite average annual sales growth of 29 percent since Zollars became CEO in 1999. Yearly profits rose 79 percent on average during the same period, despite a $93.9 million loss in 2002’s tough economy.
When Zollars joined Yellow it had been run by George Powell and his family for more than four decades. Powell bought the company in 1952, relocated it from Oklahoma City to Kansas City, Missouri (today YRC is based in nearby Overland Park, Kansas), and built it into a national carrier. The family’s reign ended when George Powell III resigned as CEO in 1996 after three years of poor results.
Zollars, who spent 24 years at Eastman Kodak before joining Ryder in 1994, has transformed Yellow’s insular, process-oriented culture by deploying computers to track shipments and implementing flexible pricing and delivery schedules. The 58-year-old University of Minnesota graduate is now looking overseas for growth. YRC announced in January that it would ramp up its operations in China, using its own trucks to deliver goods from customers’ Chinese manufacturing and distribution sites to Shanghai for export.
The company still faces obstacles like high oil prices and competition from parcel-delivery companies FedEx Corp. and United Parcel Service. In August, UPS bought L-T-L carrier Overnite Corp. for $1.25 billion. FedEx and UPS also are active in China. Zollars recently discussed these and other issues with Institutional Investor Senior Editor Justin Schack.
Institutional Investor: Are you through making big acquisitions?
Zollars: Right now our network in the U.S. is in really good shape. With USF we now have a comprehensive footprint. I’d say our acquisitions of asset-based companies in the U.S. probably have come to an end, and we’re now focused on building our global network.
Some shareholders wish you were more aggressive about cutting costs.
One of the issues in today’s market is that many investors regard “long term” as meaning “next week.” We’ve got to make sure that the company is successful five years out. Consequently, when we’ve acquired companies we’ve been very careful not to touch the customer interface. That has been a great strategy. We’ve retained customers while delivering substantial revenue and earnings growth.
Do you ever fantasize about going private to sidestep the costs of being public and the fickleness of the market?
Absolutely! “Fantasize” is the right word. Between [the] Sarbanes-Oxley [Act], the short-term orientation of the market and, frankly, the lack of capability on the part of the sell-side analyst community, I think every CEO of a public company today thinks about going private. But I don’t think that’s in the cards for us. We’re going to continue to need to access the capital markets as we grow.
You serve on the boards of Cigna and ProLogis. How has being a director changed since Sarbanes-Oxley?
There’s a lot more attention to detail. Committee meetings are a lot longer. It started with audit committees, and now you’re seeing it with compensation and governance committees too. It’s also tougher for companies to recruit board members because of the greater amount of work involved.
Are the extra work and cost worth it?
It’s hard to justify the money companies spent on complying with section 404 of Sarbanes-Oxley [requiring the documentation and certification of internal financial controls]. That was a great example of regulatory overkill, and I think it significantly affected productivity in the fourth quarter of 2004. But on balance the new rules and regulations have been positive.
Did taking over a longtime family-run company present a special challenge?
Having one family lead the company for as long as it did kind of limited its view of the world. Being in one segment of the industry for as long as they were, they were not as aware of the other aspects of the supply chain that affect customers. There was a mentality with some of the workforce where we told the customers what we did and there was no flexibility. If the customer needed a delivery to arrive a day earlier, our people would just say, “Sorry, we don’t do that.”
How have you changed that culture?
We started to measure how well we do for customers in reliability, dependability, the breadth of our portfolio. We’ve changed from being pretty inwardly focused and operationally driven to being more outwardly focused and driven by the needs of customers.
How did you get that message out?
At first I spent 80 percent of my time on the road, talking to people on the docks and at our various locations and having dinner with customers. We constantly repeated the message that we were going to be consumer-driven. The first time I came through, people weren’t convinced. But by the second or third time, we usually had some evidence that things were working, and they started to believe.
Is competition between parcel shippers and less-than-truckload carriers getting more intense?
We’ve lived with that for a long time. Before they acquired Overnite, UPS had what they called their Hundredweight program, and FedEx has been in our market since they acquired American Freightways in 2001. There will be more consolidation. We think we’re big enough now that we can compete with just about anybody. Having said that, we’re smaller than UPS and FedEx and a bit lighter on our feet.
Why operate your own trucks in China rather than rely on joint ventures?
It’s a simple matter of following our customers around the world. They’ve expressed the need for a better connection in their supply chain over there. They like the idea that we can pick something up in China and handle it all the way through to delivery in the U.S.
What obstacles have you found there?
The ground transportation market in China is extremely fragmented. There isn’t much technology being deployed, and the dependability and reliability of the service needs work. The Chinese have done a really nice job investing in ports and ground infrastructure. But their technology is way behind.
How will you overcome that?
We have to decide whether to buy a Chinese trucking company and use that as a foundation to build or to build from scratch. We probably will buy.
Have expanded homeland security safeguards hurt business?
There was a period after 9/11 when the borders were a real problem, but most issues have been smoothed out. We’ve been aware of security for a long time. Our network is a nice way for people to move illicit goods. We have computer systems that can identify potential problems at the front end. If we’ve got someone who normally ships lightbulbs and the pallets weigh 2,000 pounds, that’s a sign something’s wrong.
Is the price of oil a big problem?
It’s not really serious, because we’ve had fuel surcharges in place since 1996, which allow us to pass on increases in the price of gas to our customers. But now customers are getting more aggressive about negotiating better base rates.
Some investors fear you’re losing market share and pricing power.
Pricing right now is clouded by energy costs. During the past couple of years, the industry has performed really well, and we have been one of the leaders. There have been sell-side analysts predicting our demise for the past 20 years now, and they’ll probably continue to do so. We’ll just keep on doing what we’ve been doing.
