Less-than-truckload carrier Yellow ceded more tonnage during the fourth quarter as part of a companywide overhaul aimed at streamlining costs and driving yields higher.
Yellow’s (NASDAQ: YELL) tonnage fell 25% year over year (y/y) in the quarter, down 35% on a two-year comparison. That far outpaces peers, most of which reported tonnage declines in the mid- to high-single-digit range for the quarter, with two-year comps remaining up single digits.
However, revenue per hundredweight (yield) growth, was again better than that of the industry. The metric was up 12% y/y in the fourth quarter, 29% higher on a two-year comp. Other competitors logged a mid- to high-single-digit yield increase in the period.
Yellow reported a fourth-quarter net loss of $15.5 million, or 30 cents per share, 20 cents worse than Seeking Alpha’s consensus estimate. Further, that number included the benefit of a $28 million gain from the sale of a shuttered terminal. While the company could continue to book gains on terminal sales in the near term, the line item is not likely to recur long term and is not indicative of normalized results.
As part of the restructuring, Yellow is consolidating its different LTL companies and closing excess or redundant terminals. The company has 308 terminals currently but is expected to have 290 when phase two of the process is completed. In the past, management said the entire process will involve the closure of 28 terminals, or 6% of doors.
Analysts questioned the strategy on a Thursday evening call, curious as to when the carrier will begin to refill its network with freight to avoid subpar financial results.
“We continue to prioritize yield,” CEO Darren Hawkins said. “We’re finding the yield equation across LTL to be strong, and certainly to cover the inflationary cost, we’ll continue to prioritize that.”
He said Yellow is still a growth story and the company will be ready to take on volume after the restructuring and as freight demand improves.
The second phase of the overhaul, representing roughly 70% of the network, hit a snag when the Teamsters union pushed back on work rule changes proposed in a change-of-operations notification. The company made modifications and refiled those requests on Monday, seeking implementation no later than April 30.
“We’re in the process of meeting with those unions and fielding any questions or concerns around the optimization. … Phase two is still moving forward,” Hawkins said.
Yellow reported a 9% y/y decline in LTL revenue to $1.07 billion. The tonnage decline was the result of a 23% drop in shipments with weight per shipment declining 3%. The y/y volume declines worsened as the quarter progressed: down 23.9% in October, down 24.8% in November and down 27.1% December.
In January, Yellow saw an 8% increase in tonnage from December. The normal cadence is a 1% sequential decline. Tonnage was down 17% y/y in January, but that number was 33% lower on a two-year comp. Also, some carriers have indicated that severe winter weather at the end of December pushed loads into January, boosting trends for the month.
The normal sequential decline from the fourth to first quarters is 3%. Management hopes to outperform that change rate given the outperformance to start the period.
Contractual rate negotiations in January were up between 5% and 6% y/y.
Asked if there were any concerns on the pricing front or if some carriers may be taking share at the expense of yield, Hawkins said, “I’m encouraged with what I’m seeing from the Yellow perspective. I haven’t seen predatory pricing.”
Operating ratio came in at 96.6% in the fourth quarter, 90 basis points worse y/y. However, excluding the gain on sale, the number was 99%. The company normally sees 200 bps of OR degradation between the fourth and first quarters, which is management’s expectation this quarter.
Terminal sales during the year allowed Yellow to reduce debt by $40 million to $1.58 billion. In early January, it repaid $66 million in notes tied to deferred pension payments. Even with the debt reduction, the company expects to see cash interest expense increase $13 million to between $135 million and $145 million as interest rates have climbed.
The company has one debt covenant it must maintain; adjusted earnings before interest, taxes, depreciation and amortization of $200 million over the last 12 months. It generated $343 million in adjusted EBITDA in 2022 but only $55 million during the fourth quarter.
“I’m bullish on America and I’m bullish on LTL,” Hawkins said. “I think nearshoring, reshoring from an industrial standpoint, we’re going to have a great awakening in America that’s going to be a benefit to the LTL industry over time.”
Shares of YELL were down 9.9% in after-hours trading on Thursday.
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