Yellow Corp. intends to lower the number of terminals in its network from 316 to 300 by the end of the year as the less-than-truckload carrier seeks to slash expenses even further, according to company executives.
Following the release of Yellow’s first-quarter financial results on Tuesday, chief operating officer Darrel Harris stated that the terminal closure would have no impact on the company’s ability to move freight.
“I just want to make it clear that we’re not giving up geographical coverage, and we’re also going to safeguard capacity for our customers because we do plan on growing when we finish One Yellow,” Harris said of the company’s restructuring effort.
Yellow announced its plan to deactivate nine terminals last week after notifying the Teamsters. In addition, the proposal calls for the consolidation of 20 YRC Freight and Reddaway sites, as well as the realignment of ZIP codes in the West.
After the market closed Tuesday, Yellow (NASDAQ: YELL) posted its greatest first quarter in six years. On the operational line, the period came in slightly better than breakeven with a 99.3 percent operating ratio, which was 300 basis points better year over year. It did, however, disclose a net loss of 54 cents per share, which was less than half of the deficit recorded in the first quarter of 2021 but worse than the consensus projection of a 41-cent-per-share loss.
Terminals are closing in the West as the One Yellow turnaround progresses.
A “One Yellow” restructure placed all of the company’s separately operating LTL carriers and logistics companies onto the same software platform. In the West, the next phase of integration will include a terminal-by-terminal redesign.
Aside from terminal optimization, the new operations ask for the installation of 11 velocity distribution centers, a new linehaul network, and 260 utility driver employment.
Phase two will take place at carrier New Penn in the third quarter, followed by phase three at carrier Holland in the fourth quarter. When the process is finished, the carrier will have roughly 300 facilities.
Starting in the third quarter, the modifications will result in immediate cost reductions on 28 percent of its network.
“Once completed, our clients will benefit from interfacing with North America’s second-largest super-regional LTL network for both regional and long-haul shipments,” CEO Darren Hawkins remarked in a press release. “We anticipate that the network transformation will also result in greater asset usage, increased network efficiencies, cost savings, and capacity creation without the need for new terminals.”
Demand is expected to stay strong during the second quarter.
According to Hawkins, demand from Yellow’s industrial and retail customers remains strong.
“Looking ahead,” Hawkins added, “demand for LTL capacity remains robust, with inventory levels being below normal and a manufacturing sector playing catch-up from supply chain disruptions and a tight labor market.”
In the first quarter, revenue increased by 5% year on year to $1.26 billion. Tonnage per day decreased by 20%, but revenue per hundredweight excluding fuel grew by 22%. Yellow is taking advantage of a favorable market environment to replace lower-margined freight with more profitable shipments.
Tonnage decreases peaked in February, falling 27 percent year on year. March was down 18 percent, while April was down 14 to 15 percent. Yellow had to reduce shipments at some terminals throughout February because of COVID-related labor headwinds and bad weather.
Pricing for contracts renewed in April increased from 10% to 11%.
The increase in first-quarter margins was driven by yield growth, a 400-bp decrease in salary, wages, and benefits as a percentage of revenue, and a 200-bp decrease in purchased transportation expenses. Adjusted earnings before interest, taxes, depreciation, and amortization more than doubled from a year ago to $341 million.
Every year, the organization experiences between 350 and 400 basis points of sequential OR improvement from the first to second quarter. Management anticipates that turnaround initiatives and its yield improvement strategy will outperform that degree of improvement. The better estimate includes a 5% increase in union salaries and benefits, resulting in a 40- to 50-bp cost headwind.
The pay raises took effect on April 1.
Yellow had $277 million in available liquidity at the end of the quarter, down from $423 million a year ago. Outstanding debt climbed by 10% year on year to $1.61 billion. Following the full drawdown of a $700 million COVID relief loan agreement with the government, the company’s debt load increased. The agreement allowed it to update its fleet and purchase leases.
In the third quarter, cash used in operations was 14 percent lower year on year, totaling $34 million.
