Yellow Turns An Operating Profit In Strong LTL Macro Environment

A rising tide of strong demand and tight capacity lifted all LTL boats in the second quarter. The market was so strong, in fact, that even the perpetually leaking dinghy from Kansas made money.

Overland Park-based Yellow Corp. reported late Wednesday second-quarter operating income of $27 million on a revenue of $1.3 billion. This compares to an operating loss of $4.6 million on revenue of $1.015 billion during the second quarter of 2020 when economic lockdowns during the early days of the COVID-19 pandemic flattened industrial production, which is the LTL carriers' bread and butter. The 2020 operating loss also included a $6 million net gain from the sale of real estate.

Yellow (NMS: YELL) posted a $9.4 million net loss in the 2021 quarter, equal to 18 cents per share. The net loss in the 2020 second quarter was roughly four times that.

Yellow generated $82.9 million in adjusted earnings before interest, taxes, depreciation, and amortization, more than doubling the adjusted EBITDA of $37.9 million in the 2020 second quarter. The operating ratio moved favorably to 97.9% from 100.5% in the second quarter of 2020, Yellow said. This meant that Yellow spent nearly 98 cents for every $1 in revenue, which is still very high compared to other LTL carriers, even those that are unionized and have higher labor costs.

Yellow's daily tonnage rose 8.3% year on year, while shipment volumes increased 8.7%. Revenue per every 100 pounds carried, a key measure of the yields generated by the tonnage, rose 16.2% year-on-year, including a top-line gain from fuel surcharges. The average weight per shipment rose slightly to 1,436 pounds.

Yellow shares rose nearly 6% to $5.83 per share in early trading on Thursday. In the mid-2000s, shares traded in the mid- to high-$50-a-share range. But two disastrous acquisitions, uncompetitive labor costs, aging equipment, and tough competition turned the now 92-year-old business into a shell of its formerly solid self. Over the past 12 years, the company has survived two brushes with bankruptcy and insolvency. Long-term shareholders have seen their investments virtually vaporized. Yellow's unionized workers have lost much of their pension benefits and have agreed to wage reductions to preserve the company and their jobs.

In late 2020, the company ditched the name YRC Worldwide Inc. that it held since 2006 and returned to its roots by rebranding it as Yellow Corp.

Yellow, which operates a national carrier and regional carriers New Penn, Holland, and Reddaway, is migrating to an integrated network that will turn it into a "super-regional" carrier operating one- two- and three-day delivery services on nationwide lanes. All four companies will be operating on a unified IT platform by year's end in a prelude to the physical integration, CEO Darren Hawkins said in a statement.

Analysts on the post-earnings conference call focused much attention on Yellow's increase in purchased transportation costs to $210 million from $126 million in the year-earlier quarter. In order to meet strong demand with a dearth of in-house over-the-road and local cartage drivers, Yellow relied more on third parties in the quarter to pick up and deliver freight. It also prioritized yield over tonnage both as a profitability measure and as a way to ensure adequate service levels.

The comparisons of purchased transportation costs may have also been skewed by the very weak 2020 second quarter that reduced the need for LTL services in general.

Hawkins told analysts that purchased transport costs should begin to dissipate as many unemployed Americans return to work with the economy improving and jobs more plentiful. Company executives said that hiring activity in the past two to three weeks has been the strongest they've seen so far in 2021.

Yellow currently operates 322 U.S. facilities, and Hawkins said the company has no plans to reduce that count below 309 or 310 even if the transition to an integrated network might allow Yellow to consolidate its network further. Hawkins said that Yellow will not sacrifice geographic coverage or available capacity that might otherwise be compromised by deeper cuts in its facility network.

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