With questions swirling around the fate of the nation’s third-largest less-than-truckload carrier, Yellow Corp., industry analysts have started looking at which carriers stand to benefit the most if the company fails.
Seemingly running out of options, Yellow (NASDAQ: YELL) filed a $137 million lawsuit against the Teamsters union on Tuesday. The suit alleges the union is unjustifiably blocking proposed operational changes that the carrier is contractually allowed to implement. Yellow asserts the union’s slow response and unwillingness to negotiate have added to the company’s deteriorating financial condition.
Yellow recently asked health and welfare and pension funds if it could delay contribution payments for the months of July and August in order to preserve its cash, which it says will be depleted by mid-July. Also, the lawsuit revealed Yellow unsuccessfully solicited the White House’s help brokering a deal.
“YELL’s situation creates huge benefits for the remaining, stronger LTL players that are able to profitably handle the extra volumes,” Deutsche Bank (NYSE: DB) equity research analyst Amit Mehrotra told clients on Wednesday.
He said the negative press has likely resulted in more freight leaving the company.
A recent intraquarter report from Yellow showed its tonnage was down 16% year over year in April and May and 33% lower than in the same two months of 2021. Some of the declines can be attributed to recent yield improvement initiatives and the dislocation caused by a multiyear restructuring, which has allowed it to consolidate its four LTL brands and reduce its terminal footprint.
However, Mehrotra notes, customers are also seeking other transportation options given Yellow’s inability to reach a deal with the Teamsters.
“Based on all the developments over the last two weeks, we continue to think it’s more likely than not that a meaningful piece of Yellow’s business is diverted away to competitors.”
He also pointed to a final report issued Tuesday from the congressional oversight commission tasked with overseeing the 2020 COVID-relief lending program. The report noted numerous mistakes made by government agencies during the approval process of a $700 million Treasury loan to Yellow. It also advised the Treasury to unwind its debt and equity holdings in the company.
“These developments make it highly unlikely, in our view, for a last-minute deal via outside intervention,” Mehrotra said.
Yellow has narrowly averted bankruptcy in the past by orchestrating wages and benefits concessions from Teamsters as well as eleventh-hour debt restructurings. With the unfavorable loan commission report and the Biden administration’s recent pass on lending a hand, it doesn’t appear the government is interested in a bailout.
TD Cowen (NYSE: TD) analyst Jason Seidl said union carriers like ABF Freight, an ArcBest (NASDAQ: ARCB) subsidiary, and TForce Freight, a TFI International (NYSE: TFII) company, would likely be the biggest winners of Yellow’s $5.2 billion slice of the LTL industry.
He said these carriers are more compatible with the way Yellow operates and could hit the upper end of the earnings-per-share growth ranges he calculated. The high end of the EPS range was 32% for ArcBest and 14% for TFI. XPO (NYSE: XPO) had an EPS growth range of 9% to 35% but presumably with a lower confidence level assigned.
He doesn’t see Old Dominion (NASDAQ: ODFL) as a big beneficiary due to its “strict pricing discipline and freight profile.” He also noted some “strong private carriers” would likely see incremental volumes if Yellow were to fail.
Seidl said he wasn’t predicting Yellow’s demise or its survival, just providing some math in case the carrier exits.
He drew on comparisons to the 2002 failure of Consolidated Freightways, the third-largest LTL carrier at the time. That company was generating more than $2 billion in revenue with 20,000 employees, 14,500 of whom were Teamsters.
Seidl said that competitor ArcBest reported an 11% increase in daily tonnage the month that followed the announcement of CF’s bankruptcy. ArcBest’s tonnage was down 2.4% in the month prior to CF’s bankruptcy.
However, Mehrotra said the events at Yellow create the potential for “massive earnings accretion,” noting Old Dominion and Saia could see their earnings increase by more than 20%. He said a “wall of freight” could present some execution challenges to network-centric businesses like LTLs, but believes high-quality service standards at Old Dominion and Saia will allow them to more effectively onboard any windfall.
“The bottom line is we continue to see significant further upside in LTL shares on the back of developments at YELL,” Mehrotra said.
Shares of YELL were down again on Wednesday, off 19% following a 22% decline on Tuesday. Shares of other LTL carriers were up slightly to as much as 4% on the day, following mid- to high-single-digit increases on Tuesday.
More FreightWaves articles by Todd Maiden
- Yellow running out of options, sues union for $137M
- XPO finishes expansion project in Salt Lake City
- Yellow asks to defer health care, pension contributions
Glenn
Iam disgusted with my Union leadership. They are playing games with 22,000 members lives and their families. It dosen’t matter what our contract is. Just keep the company alive. Anyone who isn’t happy can then quit on their own terms, whenever they find something better. QUIT THE COMPANY. DON’T LET THE COMPANY QUIT YOU.
It’s easy for our president to gamble with your job. Because he will still be the Union leader with a salary $450 to $900 thousand dollars per year, while your on the street without a job.
Obrien couldn’t care less if we loose everything we have worked for.
Kurt Dietrich
Come on guys, get it together. Both the company and its workers need to realize that they’re in the same boat and that “we float or sink together”. Today you both are worth $50 mill based on market cap. I’d be happy to buy you if you would ONLY commit to work together to SURVIVE. Otherwise, go the way of CF NEMF and others. Remember…”in unity there is strength” and “only the strong survive”.
My 2 cents.
Freight Zippy
The Teamsters have a seat on the Board at Yellow. Why not use some of the $120 BILLION in corporate welfare Joe Biden gave the teamsters union for pensions.
What better thing to do other han invest in union companies.
With a market value of $35 million a minor investment from the Teamsters can show us how to properly manage an LTL carrier..
Stag Master
YELL should just give the company to Sean and the Teamsters and let them run it. I’d love to see how wages, benefits and work rules would be handled for the drivers along with salaries for ‘their’ managers.
Tony
Hey Andy
Share with us whom you are working for
Jason Mehr
“If you don’t like it here please quit “.
I understand the sentiment but as a former employee I cannot agree with love it or leave it. Multi year employees have a vested interest in the success of the company. As an insider this did not just pop up out of nowhere, employees have been begging, asking, giving all to the company just to have management take advantage repeatedly.
If your solution is to give up and go away then truly nothing will ever change…why would it?
Unfortunately the same is true for our country in these despicable times.
Mike
Exactly,management blames everyone but themselves and all the time we were giving back they still kept taking their enormous bonuses.
Andy
I worked at Holland for over 21 years. Holland was a GREAT company to work for, very profitable. Good wages, benefits and retirement. A well managed company. After yellow bought USF, it was a continuous decline. 15 percent wage give backs. 75 percent reduction in pension payments. Consecions on work rules. The Teamsters membership have given literally billions in give backs to try to save the yellow companies, along with a 700 million dollar loan. They still can’t make a profit. I now work for another union freight company. Better wages, benefits, and a retirement. Treated with respect, well maintained equipment and profitable. Well managed company. My opinion, PROBLEM: YELLOW MANAGEMENT ! !