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
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DC
Right there in the article .. in the past the Teamsters have bailed out Yellow / YRC / Roadway via concessions says it all. Do you hear of any of the asswipes in the C suites offering to take a pay cut ..?
NOPE.
Collectively 5 people make over 12 million dollars a year including CEO Darren Hawkins that has consistently failed to make anything happen which must be the business plan the board is following. Jesus Earl Christ I don’t understand how any of them still have a job.
FIRE THE BOARD AND SHOW CREDITORS YOU’RE SERIOUS ABOUT SETTING THE SHIP ON A BETTER COURSE.
C millstone
I worked for USF Holland for 16 years. When Yellow bought us out it was all down hill from there. Then they cut our pay 15 percent. The stupid union said we better take the cut or they’ll close the doors. Then pension cuts.I knew we were in trouble. Yellow could never run a trucking company.Their motto was buy and destroy. They did a great job of that and Bill Zolars what a idiot that’s all I say about him. You can’t rob Peter to pay Paul over and over. Give them money and watch them piss it away. Thank God I left years ago.
Unions Suck
I love how Teamsters keep blaming Yellow for mismanagement of company & money, mentioning their mismanagement of 700 million dollar COVID bailout. Isn’t that the pot calling the kettle black! Just last year, it was the Teamsters that took a $36 BILLION dollar tax payer bailout because they can’t properly manage their union & money. Unions are dying breed because they became corrupt, greedy and lazy. The lazy drivers just want to sit in the drivers lounge complaining while getting paid to sit on their butts instead of breaking their trucks. It’s both of their faults. 50/50. This company deserves to close it’s doors.
JL
I worked for Yellow as a driver and loved it! I think I was mostly just proud to work for a company that had such rich history in the trucking world. It’s historic competition with Roadway Express revolutionized the LTL business! History that most employees never cared about. When I drove for them, all I heard was bickering between the Yellow and Roadway guys. They seem to hate each other instead of working together. Furthermore, the stupid union’s business agent would call me just to attempt to get me all worked up and mad at Yellow for no reason! I HATED the business agent and the union because of this! I just hate unions, period! They are ignorant. As an example, when I started driving for Yellow, I was fresh out of trucking school. I asked my linehaul boss, Andrew, who was awesome, if I could take a day and practice putting sets of trailers together for practice. He told me because of the stupid union, it would take about six different signatures to make that happen and it wasn’t likely. Something so simple as to allow me to take my own time, not paid, and just practice putting sets together was NOT allowed by the union! Totally ridiculous!!! Did I mention I HATE unions! I will say, ABF is a great company, but I would never want to drive for them because I don’t want a stupid business agent calling me making up crap against the company! The economy is crashing, inflation is soaring and the union idiots continue voting for the morons causing it! smh
Yes, Zollars should have NEVER purchased Roadway or USF, but that’s done! Now it’s time for everyone to work together to keep this landmark of a company going! Unfortunately, the company has too much debt from the acquisitions/loans, and with the union’s chokehold that continues digging the grave, I doubt very much Yellow exists come Sept. 1st. I’m sure I’m alone, but I will be very sad to see Yellow gone! Well, the 30,000 employees might be a little sad too!
GoddessofWar45
Yellow is overtly TOP HEAVY. Its corporate ranks need to be the first purged. They just 1month ago dolled out big bonuses across the board for all non union employees. Think about that. Bonuses knowing your signed into a contract w the union that by your actions shows you intended full well to break that contract early. And in just 30 days big bonuses go out. Either Darren is either a bumbling incompetent, or wholly unethical. Factually I believe yellow is lying about their financial statuses and solely seeking to oust union personnel. They have waged a war on good union members drivers terminal personnel through abuses and paperung of employee files. Malicious contrived write ups. People who’ve done nothing wrong but terminal managers are over paid under worked and abusing the very foundation of the company. It’s time to purge the graft, incompetence, and dishonest corporate malignancy. Where the true savings comes. Too many vp’s secretaries to the secretary of the vp. They are like the lilies of the field…they toil not. Produce nothing. And are bleeding the company dry at the expense of it’s very foundation. A house divided cannot stand. Darren is nothing but decisive. Cull Yellows corporate grifters.
J
I work for Yellow / YRC on the West Coast. Our pension has been gone for years. We have a joke of a 401k plan, our wages here are well known thru out the industry to be just about the lowest paid in LTL and we have a lot of dedicated Teamsters who want to work and want to see Yellow survive. Both sides gotta be able to figure it out. I got 20 yrs safe driving so at the end of the day, I’m not terribly worried about finding work elsewhere. But it would be nice to find a company that is stable and can let a driver plant their flag and ride out the rest of their career without having to worry about this crap. The stock is in the dumps. Yellow is a hot mess. I don’t see it surviving.
Bob Wagner
I drive city for Yellow.
I’ve been at this same old Roadway Express terminal for 37 years chasing a pension that Yellow made harder to get.
I was a Roadway employee before the Yellow Parasite took us over. The way I see it is that Yellow pockets way too much of its earnings at the corporate level and doesn’t use its earnings responsibly. It takes, it begs, it borrows, and then does it all over again. They lie to their employees, pass out unqualified sign on bonuses, golden parachutes and bonuses for failures at the top. The Yellow Pirates keep what they get and blame everyone else for their lying mismanagement of finances.
I’m applying to ABF to get my full pension back.
ITS ALL AN ILLUSION
Pension contributions? What ‘pension contributions ‘ are we talking about? That was done away with around 2010. They rolled out a puny 401k plan a few years ago that pays pennies.
Besides no pension, we took a 15 percent cut in wages and lost all the ‘promised ‘ stocks due to reverse splits.
Teamsters have done everything while the upper Yellow/Roadway corporate figure heads raked in and pocketed the money piles and bailouts.
Yellow/YRC should have gone out of business back then.