Yellow CEO Hawkins says he’s ‘bullish on America’ despite tougher LTL environment

Yellow Transportation, which has about 10% market share in the less-than-truckload (LTL) environment, paid the price for slackening demand in the overall trucking market in the fourth quarter.

But Yellow executives say they are buoyed about the LTL market based on contract renewals coming in last month with 5-to-6% rate increases.

“I’m bullish on America and I’m bullish on LTL,” Yellow CEO Darren Hawkins said in a conference call with analysts.

Yellow posted a $15.5 million net loss on $1.2 billion operating income in the fourth quarter, compared with a net loss of $44.7 million on $1.3 billion revenue in the 2021 fourth quarter.

Additionally, Yellow’s Q4 operating income included a $28.2 million net gain on property disposals. In comparison, operating revenue in the fourth quarter of 2021 was $1.309 billion and operating income was $55.8 million.

Yellow posted full year net income for 2022 of $21.8 million on $5.2 billion revenue, compared with a net loss in 2021 of $109.1 million on $5.1 billion revenue.

“We saw a notable drop in demand in Q4 as the economy cooled down,” Hawkins said on an earnings call with analysts. Still, he called the LTL pricing environment “one of the most favorable” in years.

As proof of that, Yellow is enjoying 5-to-6% raises in contractual rates that came due last month, Hawkins said.

Operating revenue for full year 2022 was $5.245 billion and operating income was $197.8 million, which included a $38 million net gain on property disposals. This compares to full year 2021 operating revenue of $5.122 billion and operating income of $103.6 million.

Adjusted earnings before interest, debt and amortization (EBITDA) was $343.1 million compared to $306.0 million in 2021, Yellow said.

“In the fourth quarter, demand for LTL capacity decreased compared to the tight environment a year ago contributing to the decline in tonnage per workday,” Hawkins said in a statement.

“The manufacturing sector’s strength began to waver, similar to the retail sector earlier in the year, pointing to a loss of economic momentum,” Hawkins said.

In response, Yellow adjusted its workforce to align with what it called “muted volume” and continued to closely manage the use of purchased transportation and other expenditures.

Including fuel surcharge, fourth quarter 2022 LTL revenue per hundredweight increased 21.1% and LTL revenue per shipment increased 17.8% compared to the same period in 2021. Excluding fuel surcharge, fourth quarter LTL revenue per hundredweight increased 12.4% and LTL revenue per shipment increased 9.3%.

“Despite the near-term headwinds, the yield environment remains stable,” Hawkins said. For full year 2022, Yellow reported its best operating income and operating ratio (OR) – 96.2 vs. 98.0 for 2021 – in 16 years.  

Yellow successfully implemented phase one of a network optimization plan as a super-regional carrier in the western United States in September.

Phase two consists of legacy YRC Freight, Holland and New Penn terminals in the Midwest, Northeast and Southeast. Yellow officials are meeting with the Teamsters union over details of that network optimization phase.

Between these two phases approximately 90% of Yellow’s network will be operating as a super-regional carrier. The network optimization is expected to improve asset utilization, enhance network efficiencies, lead to cost savings and create capacity without the need to add terminals. In fact, Yellow plans to sell 17 excess terminals.

“We’re not giving up any geography and we’re improving network optimization,” Hawkins said. He said Yellow’s goal was 290 terminals, down from 308 now.

Yellow also reduced outstanding debt by nearly $100 million in another step on the path to refinancing and strengthening its capital structure,” Hawkins said. He said despite volume levels, he was “pleased in the direction of contract renewals in January,” coming in with 5-6% rate increases.

Yellow’s operating ratio for fourth quarter 2022 was 96.6 compared to 95.7 in fourth quarter 2021.

Fourth quarter 2022 LTL tonnage per workday decreased 25.1% when compared to fourth quarter 2021, Yellow said. But Hawkins said he’s not overly concerned about the overall inventory correction in the economy.

“We continue to prioritize yield,” Hawkins said. “We find the yield equation across LTL to be strong. We have capacity in this network. We have an opportunity for demand to exceed capacity, and we can be in a position to capitalize on that.”