Equity analysts weighed in on Yellow Corp.’s latest reprieve Monday morning just hours after a planned strike, which would have closed the company for good, was called off.
The industry’s third-largest less-than-truckload carrier missed a July 15 benefits payment to health and welfare and pension funds managed by Central States. Teamsters at operating companies Holland and YRC Freight covered under the plans had threatened a work stoppage for Monday if their health insurance benefits lapsed on Sunday. However, Central States granted a 30-day payment extension to Yellow (NASDAQ: YELL) late Sunday at the behest of the union.
The union also announced it would return to the bargaining table with representatives from Yellow Sunday evening. As the industry awaits the outcome of those meetings, some analysts have said that even if the company survives, the competitive landscape of the LTL industry has likely been permanently altered.
“YELL lost a significant number of customers in recent weeks, Amit Mehrotra, Deutsche Bank (NYSE: DB) analyst, told clients Sunday night. “Some of those will likely come back — especially the lowest quality and most transactional — but we suspect the business will still endure a significant net reduction in volume even with today’s announcement.”
In recent weeks there have been multiple reports that shippers are steering loads away from Yellow as it attempts to reach an agreement on much-needed operational changes with the Teamsters. Last week, Uber Freight (NYSE: UBER) said publicly it had stopped tendering freight to the company.
Morgan Stanley (NYSE: MS) published a survey Monday of shippers, brokers and carriers either working with Yellow or involved in the LTL industry. Ninety-five percent of shippers tendering freight to Yellow said they were at least “somewhat concerned” about a potential strike or bankruptcy filing (55% were “very concerned”). Ninety-seven percent said they had already diverted or were considering diverting loads to another carrier.
All brokers surveyed have either moved freight away from the company or are considering it.
Best rate available and service were the top determinants on where that freight would go. XPO (NYSE: XPO), Old Dominion (NASDAQ: ODFL) and “other” were the top three likely destinations of shippers polled.
“XPO’s positioning likely reflects that they might be next on the service/rate scale and is probably most keen to take on additional volume here,” Morgan Stanley analyst Ravi Shanker said.
Of the hundreds of respondents surveyed in total, 66% of brokers said they expect permanent changes in the market given the issues at Yellow. Carriers (62%) and shippers (52%) agreed to a lesser degree.
Years of underinvestment in Yellow’s network has weighed on its service metrics (ranked last among national carriers in Mastio’s 2022 industry survey) and its yield versus cost profile. Shanker has less conviction than some analysts as to how profitable share wins, at Yellow’s expense, will be for other carriers.
“Shippers’ inclination to move to whomever has the best rate suggests that the appetite to go up the service scale is limited if it comes with additional costs,” Shanker said. “As such, we continue to believe that Yellow customers moving over could be a low-margin opportunity to other players.
“We remain hesitant that a potential disruptive outcome at Yellow will have significant follow-through to Yellow’s primary public peers,” Shanker said. He sees the chance for numerous possible outcomes for Yellow and thinks much of the carrier’s lost business will end up with smaller carriers before landing at large national providers like Old Dominion and Saia.
Mehrotra said the payment extension by Central States doesn’t really change Yellow’s outcome all that much. A recent exchange between Yellow’s CEO and the head of the Teamsters showed the company would also miss payments to two of the other three largest funds that manage benefits on its behalf. Also, it remains to be seen how long it would take for lost freight to migrate back to the carrier’s network even if it is able to strike a deal with the union.
“We also don’t see how this solves the financial issues YELL faces,” Mehrotra said. “We note, the company had over $100 million in cash as of the end of June, and it’s likely this balance is lower following recent customer diversions. If YELL makes its payments, we estimate it would take the company close to its $35 million liquidity floor implemented by lenders two weeks ago.”
Mehrotra raised his price target for shares of Old Dominion by 36% to $475 and Saia (NASDAQ: SAIA) by 28% to $463, citing favorable long-term earnings growth catalysts given both carriers’ “service centric strategy.”
Shares of Old Dominion (down 1.6%), Saia (down 0.9%) and XPO (down 0.4%) were lower at 12:46 p.m. on Monday compared to the S&P 500, which was up 0.4%. Shares of YELL were up 22.6%.
More FreightWaves articles by Todd Maiden
- Yellow’s fate likely in hands of Kansas district court
- Knight-Swift reels in 2023 outlook after poor Q2
- Pam Transportation sees earnings fall 60% in Q2
Supply Chain AI Symposium
Past the hype. Join operators, founders, and enterprise leaders figuring out how to deploy AI in supply chain.
F3: Future of Freight Festival
Industry-defining keynotes, rapid-fire technology demos, and industry leaders networking in experiences across Chattanooga - plus the inaugural F3 Awards Dinner featuring the FreightTech and Shipper of Choice reveals.
Past the hype. Join operators, founders, and enterprise leaders figuring out how to deploy AI in supply chain.
The Old Post • Chicago, IL Register NowIndustry-defining keynotes, rapid-fire technology demos, and industry leaders networking in experiences across Chattanooga - plus the inaugural F3 Awards Dinner featuring the FreightTech and Shipper of Choice reveals.
The Signal at Chattanooga Choo Choo • Chattanooga, TN Register Now
Alex D
Goodbye yellow. Won’t be missed
T Barron
Carol, NO the teamsters took down YRC!!! I have watched this since 1988 and being in LTL since then!! Why can XPO and ODFL make money doing the same thing???? ODFL operates at 70cents while YRC operates at $1.05?? that is a loss of 5 cents of every dollar? The Drivers and the company and the union killed YRC yes like CF and every union trucking company has gone belly up!! Good Bye YRC!!! I am so glad Con-Way Freight called for the job before YRC did!! I know the YRC drivers where I live and also the Reno drivers, some great some lazy but that’s union work life!! Time for YRC to go away and the let the others take over!!!
Randy
here at yellow in south bend indiana 30 teamstsrers got laid off,we now have 1 supervisor for every 2 employees makes no sense ,one of the reasons they cant pay thier bills WASTED MONEY!!!!!!!!
Ken Steers
I’m impressed with Carol’s response because she used all capital letters. Trump derangement syndrome affects people differently I guess.
Craig
It sad very sad. Giving a company that screwed over their employees another 30 days. Should have went with the strike. Now the teamster look bad because not only they have let the company pull the same old thing 5 times already their letting it happen again. Where is the 700 million. They should have said pay up now not 30 days. Where is yellow gonna get 200 million befor taxes to satisfy the government and their other lenders that they just agreed too.
James Jackson
Really working all weekend with central states we shall what happens. Yellow screwed a lot of people out jobs. Know your history and read up
Carol Ann MacKay
The Teamsters Union Boss made it possible for YRC to continue its mismanagement and abuse of both union and non union employees. The Teamster employees are basically responsible for helping YRC retain business. YRC ON ITS VERY OWN ACTIONS OF REPEATEDLY SHOOTING ITSELF IN EVERY BODY PART IT CAN, IS SOLELY REPSONSIBLE FOR ITS SITUATION, ALTHOUGH THE GOVERNMENT, ESPECIALLY THE CORRUPT TRUMP GOVERNMENT AND ITS 2020 DECISION TO MISAPPROPRIATE $700 M OF WE THE PEOPLE’S MONEY FOR AN ALREADY COMPLLETELY BANKRUPT CORPORATION, SINCE THE PURCHASE OF ROADWAY, IS RESPONSIBLE FOR YRC’s DEMISE.
FYI, Take your MAGA hat off, and do some research! You know READ! INDISPUTABLE FACTS: Unions are ALMOST SOLELY responsible for imposing safety standards in almost every single industry, which saves lives, the environment, property, and company equipment!
Freight Zippy
By posting a meme of Yellow’s tombstone the Teamsters Union Boss showed he had no interest in preserving jobs or Yellow’s customers.
Now the customers have voted with their feet and despite a strike being avoided the business has gone to competitors.
Perhaps Yellow wil slash upwards of 1/3 or more of their 30,000 person workforce.
Less here; do not work at or do business with a union LTL carrier..