Insights

Why Yellow Corp. Stock Is in the Fast Lane Today

What happened

Trucking company Yellow Corporation (NASDAQ: YELL) reported second-quarter earnings Wednesday that came in well ahead of expectations. Investors reacted by hitting the gas, sending Yellow shares up as much as 58% in Thursday trading, as of around noon ET.

So what

Yellow has long been a laggard in the trucking industry, burdened with a mountain of debt taken on to consolidate the industry. But increasingly it appears the worst is behind it.

On Wednesday after markets closed, Yellow reported second-quarter earnings of $1.17 per share, easily beating the $0.45 per share analysts had expected. Revenue was $1.424 billion, slightly ahead of expectations and 8.4% above the same three months of 2021.

It was a tricky quarter for truckers, with companies trying to manage strong demand while dealing with sky-high fuel prices and labor shortages. Yellow performed well in part by limiting its use of outside contractors, with purchased transportation falling to 14.5% of revenue from 16% a year ago.

“Strong yield and efforts to manage the use of purchased transportation helped Yellow achieve its highest quarterly operating income in 15 years,” CEO Darren Hawkins said in a statement. “Elevated demand for [less-than-truckload] capacity continued during the quarter which drove the favorable pricing environment.”

Now what

Yellow lowered its full-year capital expense guidance to $250 million to $300 million, from $325 million to $400 million, but that was mostly because manufacturers are having trouble producing new tractors and trailers at a rate that keeps up with demand. The company also continues to make progress getting its debt under control. At the end of the second quarter debt was 3.94 times trailing-12-month earnings before interest, taxes, depreciation, and amortization (EBITDA), down from 7.38 times a year ago.

As importantly, Hawkins seems to be having success turning the fragmented businesses assembled using all that debt into one streamlined national trucking company. Yellow is finally traveling in the right direction, and investors are excited about where it is headed.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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