2023-06-28 16:45:32 ET
Summary
- Yellow Corporation's share price has plummeted to $0.83, with its market cap dropping below $44 million.
- The company's "One Yellow" initiative, aimed at restructuring the debt and speeding up deliveries, has not gained the traction it needed.
- Yellow Corporation's assets, primarily made up of "property plant & equipment" and receivables, total over $2.15 billion.
Intro
We wrote abou t Yellow Corporation ( YELL ) back in May of this year when we still deemed that the trucking company had a lifeline. The apparent failure however of some crucial support levels on the technical chart including the stock's 2020 lows (which essentially means that bankruptcy or some type of heavy-scale reconstruction has now become the most likely event) has sent Yellow's share price into freefall which is something worried employees obviously do not want to see.
Once the news broke that Yellow's possible bankruptcy is now more or less a probability, LTL industry operators received a series of rating upgrades owing to the more favorable pricing they would now have at their disposal as a result and the increase in load volumes they would avail right across the board. In fact, the trucking sector has seen strong gains in recent sessions. Unfortunately, one's company's demise is another one's gain.
As I write though, the knives are most certainly out for Yellow. With shares now having dropped to the $0.83 level (meaning the market cap has now dropped below the $44 million level), holding a $1.5 billion debt looks totally untenable at this stage.
One Yellow Initiative Never Gained Real Traction
As mentioned though in our commentary last month, Yellow has made more than $134 million in operating profit over the past 12 months. The problem is that the interest on the debt far exceeded this ($17+ million). Management knew this was the case, hence the need to restructure the debt as well as execute the rollout of the one-Yellow network as quickly as possible. Although improvements were noted in phase 1 of the rollout with respect to speedier deliveries, Yellow needed to get deep into phase two (where the big changes would have happened) but now this seems a non-runner at this stage.
The "One Yellow" rollout is important though because this initiative (since it has started) will again be looked at if new management comes on board. Does the Union want to implement this? You can sense that the frustration among union workers has been building up for quite some time now. This frustration relates back to when drivers' pay was reduced in the aftermath of some acquisitions in past times. Pension concessions in recent times are another bone of contention among union workers where sacrifices were also given.
Breaking Down Of Union/Management Relationship
On the other side, you have management currently suing the International Brotherhood of Teamsters Union for refusing to come to the negotiating table during the past eight months in order to save the tens of thousands of jobs at the company. Although this company has been brought back from the brink of bankruptcy on multiple occasions in times past, it seems that the relationship between staff and management is now at a point where it cannot be salvaged.
The issue now is who is going to be the entity who steps in here to end this "stalemate." The company in its current form cannot make money so something needs to give. You wouldn't think that the federal government will step in again after loaning $700 million to Yellow back in the time of the pandemic for almost a 30% stake in the company. Its ROI has been ultra-negative here, to say the least.
At the end of Yellow's most recent quarter, the company reported more than $2.15 billion of assets on its balance sheet primarily made up of "property plant & equipment" as well as receivables. The thing is someone will need to come in here and take control and manage these assets accordingly. Unfortunately, this looks like it will happen sooner rather than later due to shares continuing in freefall as well as the negative forward-looking EPS revisions which have come to light in recent sessions.
Conclusion
To sum up, the knives unfortunately are out for Yellow Corporation ((YELL)) as bankruptcy now looks like a foregone conclusion. Sentiment unfortunately between management and the union is at an all-time low which means the sheer willingness to sort this situation out is simply not there. More selling in the stock is expected here over the near term. Let's see what transpires.
For further details see:
Yellow Corporation: Knives Out For Bankrupt Trucking Firm