Yellow Rallies Nearly 150% Ahead Of Bankruptcy Filing
Trucking company Yellow Corp. (NASDAQ: YELL) is facing a major crisis, as the Teamsters Union and several media reports indicate that it has shut down operations and is heading for bankruptcy.
Yellow had been grappling with financial difficulties for years, and reports of its impending bankruptcy surfaced last week when it experienced a significant exodus of customers. As a result, the company laid off hundreds of nonunion employees on Friday before completely shutting down operations on Sunday, as reported by the Wall Street Journal.
The Teamsters Union announced on Monday that it had received legal notice confirming Yellow’s cessation of operations and intention to file for bankruptcy.
“Today’s news is unfortunate but not surprising. Yellow has historically proven that it could not manage itself despite billions of dollars in worker concessions and hundreds of millions in bailout funding from the federal government,” Teamsters Union General President Sean O’Brien said in a statement. “This is a sad day for workers and the American freight industry.”
Following the news, the firm’s shares rallied around 148% on the day, followed by a 52% rally in morning trading on Tuesday.
The reports of bankruptcy have brought fresh focus on Yellow’s ongoing discussions with unionized workers, as well as their $700 million pandemic-era loan from the government and other accumulated bills. Yellow, formerly known as YRC Worldwide Inc., is among the country’s largest less-than-truckload (LTL) carriers. The potential closure of the company puts 30,000 jobs in jeopardy.
What could this mean for Yellow
“The likelihood of them surviving and remaining solvent diminishes really by the day,” stated Bruce Chan, a research director at investment banking firm Stifel. Similarly, Satish Jindel, president of transportation and logistics firm SJ Consulting, noted that Yellow’s shipment volume had dramatically declined from an average of 49,000 shipments per day in 2022 to only 10,000 to 15,000 daily shipments last week.
Yellow’s financial troubles have been building up over the past two decades, largely attributed to poor management and strategic decisions dating back to the early 2000s, according to Chan. The company’s situation was further exacerbated by its reliance on a $700 million pandemic-era loan granted by the Treasury Department in 2020 on national security grounds. A congressional probe last month found that the government made missteps in this decision, exposing taxpayers to a significant risk of loss.
The government loan is set to be due in September 2024, and Yellow had made only partial repayments by March. Given its current financial state, even selling its logistics firm may not generate enough cash to keep the company operational without a substantial equity injection.
Yellow’s first-quarter financial results for 2023 showed a loss of $54.6 million, with operating revenue of approximately $1.16 billion.
The recent reports of bankruptcy preparations came shortly after the Teamsters strike was averted. However, tensions between the Teamsters and Yellow have been high, with Yellow suing the union in June, accusing it of unjustifiably blocking restructuring plans. The Teamsters, in turn, blamed Yellow’s decades of gross mismanagement, including misusing the $700 million federal loan.
As Yellow’s customers shift their shipments to other carriers such as FedEx or ABF Freight, prices are expected to rise. Yellow’s historically low prices made it difficult for the company to turn a profit, and its potential liquidation could have repercussions for the LTL marketplace. Nevertheless, analysts believe that other carriers would be able to absorb the diverted freight, indicating a potential shift in the LTL landscape.
Information for this briefing was found via AP, NPR, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
