XPO, SAIA lead rally in trucking sector after Yellow Corporation misses pension payment

Yellow Corporation (NASDAQ:YELL) dropped nearly 3% on Tuesday as the bad news piles up.

The International Brotherhood of Teamsters said YELL failed to make its required $50M in union pension contributions for the month of June, Cowen reported. The union threatened to strike if the company does not make payment by Friday.

“Given its weakened state, we believe it would be extremely difficult for Yellow to make it through a work action,” Cowen analysts wrote in a note. “A strike would significantly accelerate freight diversions to other LTL players and therefore we’d expect them (ARCB, ODFL, SAIA, and XPO) and those with exposure to LTL operations (KNX and TFII) to outperform today.”

Trucking shares neared 52-week highs with ArcBest Corporation (ARCB) rose 6.5%, Old Dominion Freight Line (ODFL) was up 5%, Saia (SAIA) increased 4.7% and XPO (XPO) jumped 5.6% on Tuesday. Knight-Swift Transportation Holdings Inc. (KNX) rose 2.9% and TFI International Inc. (TFII) was up 6.7%.

In May, YELL noted its volumes were down 16% compared to a year ago after being down 30% the prior two years, BofA Global Research analysts led by Ken Hoexter wrote in a note.

“In our discussions with peer carriers, volume shifts have already begun to take place,” BofA said.

Not enough cash

YELL recently disclosed a cash balance greater than $100M in a recent SEC filing, suggesting that the required contribution is a sizable proportion of the company’s liquidity, Cowen wrote.

“We believe it would be extremely difficult for Yellow to recover from a full-blown strike given its precarious financial status,” Cowen said.

During the pandemic, YELL received a $700 million loan from the Treasury Department.

Last month, Yellow (YELL) filed a complaint in the U.S. District Court for the District of Kansas against the IBT for breaching their contract with YELL and causing more than $137 million in damages by unjustifiably blocking Yellow’s restructuring plan for more than eight months.

YELL called the restructuring “necessary to compete against non-union carriers.”

The Teamsters Union denied the “baseless allegations.”

“After decades of gross mismanagement, Yellow blew through a $700 million bailout from the federal government, and now it wants workers to foot the bill,” Teamsters President Sean M. O’Brien said in a statement last month.

Shares of YELL are down 71% over the past 12 months.

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