Yellow misses Q1 consensus; network overhaul continues

Less-than-truckload carrier Yellow Corp. reported its best first quarter in six years after the market closed Tuesday. The period came in slightly better than breakeven on the operating line at a 99.3% operating ratio, which was 300 basis points better year-over-year.

Demand from both Yellow’s industrial and retail customers remains strong, according to CEO Darren Hawkins.

“Looking ahead, demand for LTL capacity still appears to be strong with inventory levels remaining below normal and a manufacturing sector playing catch-up from supply chain disruptions and a tight labor market, Hawkins told analysts on a call.

Yellow (NASDAQ: YELL) reported a net loss of 54 cents per share in the first quarter, which was less than half the loss recorded in the 2021 first quarter but worse than the consensus estimate calling for a 41-cent-per-share loss.

Revenue was 5% higher year-over-year at $1.26 billion. Tonnage per day was down 20%, but revenue per hundredweight excluding fuel increased 22%. Yellow is using a favorable demand backdrop to replace lower-margined freight with more profitable shipments.

The tonnage declines peaked during February, down 27% year-over-year. March was off 18% with April down between 14% and 15%. COVID-related labor headwinds and poor weather required Yellow to limit shipments at some terminals during February.

Pricing on contracts renewed during April increased by 10% to 11%.

First-quarter margin improvement was driven by yield growth and a 400-bp decline in salaries, wages and benefits as a percentage of revenue and a 200-bp decline in purchased transportation expenses. Trailing 12 months’ adjusted earnings before interest, taxes, depreciation and amortization doubled from a year ago to $341 million.

Normally the company sees between 350 bps and 400 bps of sequential OR improvement from the first to the second quarter each year. Management expects to outpace that level of improvement due to turnaround initiatives and its yield improvement strategy. The improved outlook includes a roughly 5% increase in union wages and benefits, which presents a 40- to 50-bp cost headwind.

The comp increases went into effect on April 1.

Terminals closing in the West as One Yellow turnaround advances

The One Yellow restructuring brought all of Yellow’s separately-run LTL carriers and logistics company onto the same tech platform. The next phase includes a terminal-by-terminal overhaul in the West. Yellow recently filed change of operations requests with the Teamsters to consolidate 20 YRC Freight and Reddaway terminals and realign ZIP codes. The plan will result in the closure of nine facilities.

The changes also called for the addition of 11 velocity distribution centers, a new linehaul network and 260 utility driver positions.

Phase two is slated at carrier New Penn in the third quarter with phase three at carrier Holland taking place in the fourth quarter.

In total, the company expects to lower its terminal count to roughly 300 by year-end (from 316 currently), which is a reduction from prior guidance of operating 308 or 309 terminals by year-end. However, management noted that the changes are not reducing network capacity and that a decline in door count will not be as pronounced.

The changes will provide cost savings immediately on 28% of its network starting in the third quarter.

“When this transformation is completed, our customers will benefit by interacting with North America’s second-largest super-regional LTL network for both regional and long-haul shipments,” Hawkins stated in a press release. “We expect the network transformation to also lead to improved asset utilization, enhanced network efficiencies, cost savings and create capacity without the need to add new terminals.”

Yellow ended the quarter with $277 million in available liquidity, compared to $423 million a year ago. Outstanding debt increased 10% year-over-year to $1.61 billion. The company’s debt load jumped following the full drawdown of a $700 million COVID relief loan agreement with the government. The deal allowed it to upgrade its fleet and buy out leases.

Cash used in operations was 14% lower year-over-year at $34 million in the quarter.

Click for more FreightWaves articles by Todd Maiden.

• Prologis offers to buy Duke Realty for $24B
• Forward Air acquires West Coast intermodal drayage provider
• Universal Logistics beats in Q1, ups expectations for 2022

Watch: State of small trucking

Source: freightwaves - Yellow misses Q1 consensus; network overhaul continues
Editor: Todd Maiden