Yellow Corp.
Yellow July 26 Image

Analyst: Cash burn at Yellow puts LTL's future in peril

July 26, 2023
The threat of a strike by the company's 22,000 Teamsters union members has research firm Stephens assuming revenue per day is down 70% from the second quarter, putting the No. 6 for-hire FleetOwner 500 carrier in renewed danger of liquidation.

A research analyst covering Yellow Corp. says the less-than-truckload carrier looks likely to soon run out of cash after volumes cratered in the wake of the recent strike threat by the International Brotherhood of Teamsters.

In a note to clients, Jack Atkins at Stephens wrote that Yellow, the No. 6 carrier on the FleetOwner 500: Top For-Hire Fleets of 2023, is likely to be burning cash twice as quickly as it was during the second quarter and early this month.

Freight diversions as a result of the company's contentious talks with Teamsters leaders—the union temporarily backed off a strike threat last weekend when its health care and pension fund agreed to extend benefits to two Yellow operating companies, YRC and Holland, after the company could not make benefits payments for July and said it couldn't make them for August—have blown a hole in Yellow's operations and put its future in grave doubt.

See also: Calamity averted, UPS-union deal highlights importance of last mile 

Until early July, Atkins said, the Nashville-based company was handling about 50,000 shipments per day and, due to its higher cost structure, burning through about $4 million weekly. But Stephens researchers assume revenue was 35% below plan last week and that revenue per day is now a whopping 70% below Q2 levels. (Of the shippers and brokers who responded to a recent Morgan Stanley survey about Yellow's worsening situation, 97% said they already had diverted some freight or were considering doing so.)

The volume plunge, Atkins said, means that the roughly $100 million in cash pile Yellow had a month ago is shrinking rapidly even as it is laying off some workers and furloughing others.

"It is reasonable to believe that the company could breach its $35 million liquidity requirement at any moment," Atkins told investors, adding that tighter vendor payment terms and other collateral obligations might also be draining Yellow's coffers more quickly than before.

Atkins' comments echo those of his peer, J. Bruce Chan at Stifel, who wrote that Yellow was in a precarious position a month ago as it engages with the Teamsters while a debt refinancing clock ticks. Chan said that some of the covenants related to debt maturing next year could be violated in the next few weeks if Yellow CEO Darren Hawkins and his team can't generate meaningful changes to Yellow's cost structure via the next phase of their plan to integrate the company's four legacy brands, a restructuring known as One Yellow.

Stakeholders intensify predictions of Yellow's demise

Analyst predictions of Yellow’s fate, including one from Chan’s Stifel, may prove prophetic over the next week. And they intensified as the day went on Wednesday.

A July 26 forecast from the transportation and global logistics analysts at Stifel said “all eyes are on the potential demise of Yellow,” and the prognostication saw the chances of a bankruptcy at the third-largest LTL increasing and the possibility of a major equity injection that could save Yellow “fairly remote at this point.”

“The company's cash reserves are dwindling, receivables mounting, labor relations grow more tenuous, customers are losing resolve, and the likelihood of bankruptcy is increasing, in our view,” according to an email from Stifel.

“Customers had been disinclined to pull freight from Yellow given near-industry low pricing, and a vested interest in supporting the carrier to maintain supply chain continuity,” the Stifel analysis continues. “But with the threat of strike, many of these shippers have begun to abandon ship, in our view, and our channel checks suggest that diversions have picked up considerably, large customers have begun executing contingency plans, and numerous 3PLs have removed Yellow from their TMS systems.”

See also: Union calls off strike against Yellow after benefits concession

It concludes: “The potential loss of 30,000 jobs is a somber topic, but we think the [Teamsters] have a point when they say they've sacrificed a lot and are unwilling to accept more concessions. For the rest of the industry, there is spare capacity to absorb a Yellow demise at this point in the freight cycle; such an event would be a major tailwind for remaining players, with immediate benefits to volume and density, as well as yield.”

Yellow's plight and possible exit from the LTL market also was the subject of much of the discussion on a July 26 earnings conference call of Old Dominion Freight Line Inc. (No. 6 on the FleetOwner 500: Top For-Hire Fleets of 2023). There, President and CEO Marty Freeman and CFO Adam Satterfield wouldn't be drawn into directly commenting on Yellow's situation but did say that Old Dominion is picking up some business from Yellow clients.

"Typically, when we get to the end of this kind of cycle, we start hearing comments about service issues with other carriers," Satterfield said. "Some of that has intensified the last few weeks."

Freeman and Satterfield also said they won't race to try to immediately grab as much Yellow business as they can—Old Dominion's pricing model isn't built for such a scenario and Freeman said, "We're not going to do anything to trash our service"—but will look to capitalize if other carriers struggle to maintain their service levels as a result of gorging on Yellow's fallout.

Shares of Yellow (Ticker: YELL) were changing hands at $1.12 midday July 26, which was up nearly 9% from the evening before. Over the past year, however, they are down more than 70%, which has shrunk the company's market capitalization to just $58 million.

FleetOwner Managing Editor Scott Achelpohl contributed to this story.

About the Author

Geert De Lombaerde | Senior Editor

A native of Belgium, Geert De Lombaerde has more than two decades of business journalism experience and writes about markets and economic trends for Endeavor Business Media publications FleetOwner, Healthcare InnovationIndustryWeek, Oil & Gas Journal and T&D World. With a degree in journalism from the University of Missouri, he began his reporting career at the Business Courier in Cincinnati and later was managing editor and editor of the Nashville Business Journal. Most recently, he oversaw the online and print products of the Nashville Post and reported primarily on Middle Tennessee’s finance sector as well as many of its publicly traded companies.

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