Less-than-truckload carrier Yellow Corp. reported its best first quarter in six years after the market closed Tuesday. The period came in slightly better than breakeven on the operating line at a 99.3% operating ratio, which was 300 basis points better year-over-year.
Demand from both Yellow’s industrial and retail customers remains strong, according to CEO Darren Hawkins.
“Looking ahead, demand for LTL capacity still appears to be strong with inventory levels remaining below normal and a manufacturing sector playing catch-up from supply chain disruptions and a tight labor market, Hawkins told analysts on a call.
Revenue was 5% higher year-over-year at $1.26 billion. Tonnage per day was down 20%, but revenue per hundredweight excluding fuel increased 22%. Yellow is using a favorable demand backdrop to replace lower-margined freight with more profitable shipments.
The tonnage declines peaked during February, down 27% year-over-year. March was off 18% with April down between 14% and 15%. COVID-related labor headwinds and poor weather required Yellow to limit shipments at some terminals during February.
Pricing on contracts renewed during April increased by 10% to 11%.
First-quarter margin improvement was driven by yield growth and a 400-bp decline in salaries, wages and benefits as a percentage of revenue and a 200-bp decline in purchased transportation expenses. Trailing 12 months’ adjusted earnings before interest, taxes, depreciation and amortization doubled from a year ago to $341 million.
Normally the company sees between 350 bps and 400 bps of sequential OR improvement from the first to the second quarter each year. Management expects to outpace that level of improvement due to turnaround initiatives and its yield improvement strategy. The improved outlook includes a roughly 5% increase in union wages and benefits, which presents a 40- to 50-bp cost headwind.
The comp increases went into effect on April 1.
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The changes also called for the addition of 11 velocity distribution centers, a new linehaul network and 260 utility driver positions.
Phase two is slated at carrier New Penn in the third quarter with phase three at carrier Holland taking place in the fourth quarter.
In total, the company expects to lower its terminal count to roughly 300 by year-end (from 316 currently), which is a reduction from prior guidance of operating 308 or 309 terminals by year-end. However, management noted that the changes are not reducing network capacity and that a decline in door count will not be as pronounced.
The changes will provide cost savings immediately on 28% of its network starting in the third quarter.
“When this transformation is completed, our customers will benefit by interacting with North America’s second-largest super-regional LTL network for both regional and long-haul shipments,” Hawkins stated in a press release. “We expect the network transformation to also lead to improved asset utilization, enhanced network efficiencies, cost savings and create capacity without the need to add new terminals.”
Cash used in operations was 14% lower year-over-year at $34 million in the quarter.
