Motley Fool Hidden Gems Investing - Yellow Can’t Keep On Trucking

Episode Date: July 31, 2023

Freight company Yellow stopped operations and a bankruptcy is expected as the next move. (00:21) Bill Barker and Deidre Woollard discuss: - Why Yellow shut down and what place it occupied in the world of trucking. - SoFi’s strong quarter and what it needs to become profitable. - Tupperware and the danger of meme stocks. (19:39)  Mauro Guillén, author of “The Perennials”, makes the case for abandoning traditional generational views of society, career development, and retirement. Companies discussed: YELL, SOFI, TUP, ODFL, FDX, XPO Host: Deidre Woollard Guests: Bill Barker, Mauro Guillén Producer: Ricky Mulvey Engineers: Dan Boyd, Kyle Carruthers Learn more about your ad choices. Visit megaphone.fm/adchoices

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How are you today, Bill? Very well, thanks. Let's start with a big story that unfolded over the weekend. Yellow, a large freight trucking company with a 99-year history, they shut down operations. This is interesting because it's as much as 10% of all of the less-than-truckload shipping in the U.S. So, when you think about Yellow, it's also all of the 12,000 trucks and shipping freight for Walmart, Home Depot, some of the other big retailers.

What else is happening here? Well, their debt caught up with them. They were in negotiations with the drivers. It's a union shop. They could not get to a price that was going to work. They didn't really have that much freedom on the company side to negotiate higher wages because of all the money they had already borrowed, and the covenants, they had to go to their lenders to get any significant raise approved. That really wasn't going to happen. So, negotiations broke down, and they really stopped taking new orders last week, and kept delivering the things that were already in the system. But their customers fled earlier in the month

as they lacked confidence in the company, with good reason. They just had too much debt, and they were not turning a profit. They had big loan payments coming due soon. Yeah. There's a couple of things that happened. That Teamsters negotiation, around July 24th, is when that broke down. That's what you mentioned, when the customers started leaving. Now, they announced on Friday that they were laying off all of their non-union employees, and then over the weekend, they finished up with that. Now, it seems like we're waiting for bankruptcy notification. Do you think this is a Chapter 11 restructure or a Chapter 7, and they just try to sell everything off? I'm not sure. There aren't that many

details out there. I'd prefer, from a capitalist viewpoint, to see Chapter 7. They just weren't a very good capital allocator. They'd been given money to use. They had employed a lot of people. They delivered products. But they were the low-cost and the low-reliability provider in the space. I think that there are going to be higher prices across the LTL, less than truckload, universe going forward, because everybody else charged a little bit more and was more reliable. They were more worth, as the outcome of the market interactions approves, they were worth more money to do the service than Yellow was. They were used by a lot of the people who were looking for the cheapest price. But you get what you pay for.

And that's where we are today. Yeah, very true. So, if they're out of the running permanently, is that a benefit for XPO Logistics, Old Dominion, some of those other companies? Yes. Simple enough? Yes, simple enough. You take somebody who is able to capture 9%, 10% of the market, that's down from where Once Upon a Time was, but still a reasonable percent third-largest player, and you just give that business to all of the competitors, say, XPO, FedEx, Old Dominion, which is the real quality player in the LTL space. They're all going to benefit, they're all going to

be picking up business from this, and they're all going to be able, in the short-term, to charge higher prices for taking on the business, because they've got to scramble to be able to fulfill all the demand that's now out there. It's a little bit of good news because the e-commerce sector and the freight sector has been down a little bit. Maybe that's good news for them? It's definitely good news for them. Because things are a little lighter, the economy has shifted more toward experiences rather and goods as we've come out of COVID. So, there was a little bit of slack in the system. Prices had come down, and now they'll go back up. It's a cyclical economy there, but the

general economy is healthy. This was not a particularly bad part of the cycle for the trucking industry. It was just a bit lighter than it had been. Part of the story here is, the company received a $70 million pandemic loan. There was a congressional report that came out last month saying the loan was a mistake. Do you think this is going to have any impact on future bailouts? We're not looking at any other bailouts right now, but we know the cycle. Eventually, government bailouts will become a question again. Well, you hope that people will learn from this. Fortunately, the loan was made during the Trump administration, and the report

was issued by Republican Congressman French Hill. He did the writing on it. So, there isn't the extreme level of politics that one might anticipate, where one party is accused of having done something that the other party then gets to take a shot at. This is a little bit more, hey, this was done in 2020. It was done at a time where there was a lot of questions about how things were going to play out. But the size of the loan to Yellow, given its history, it practically went bankrupt in the last recession, 2008-09, and just really didn't have a great record of capital allocation. So, it wasn't a surprise that they were immediately in trouble in 2020. They did do some deliveries for the Department of Defense and Energy, so there

was this national security argument to make that their continued existence was critical to national security. It's a bit of a stretch because there are a lot of other companies that did the same work and were healthier. In retrospect, it obviously was a mistake because the money is not going to be repaid. The other story here with that is the Teamsters negotiation that we talked about. Bad news for the Teamsters on this one. It's about 22,000 union employees. But it's been a busy summer for the Teamsters. They recently negotiated their contract with UPS. It seemed like they got a lot of what they wanted.

I feel like we spent a lot of time talking about unions this summer, more than we have in a long time. As investors, how should we be thinking about unions going forward? I know we've got an autoworkers negotiation coming up. Seems like unions are in the news a lot lately. Yeah, there are a lot of contracts that are coming up, and inflation has been a factor since the previous contracts were entered into. So, there's a very good argument that wages have to be raised quite a bit. that's a cycle that ends up potentially extending inflation. But this is an isolated situation the Teamsters negotiated pretty successfully, I would say, with UPS. I would assume the

autoworkers, again, although there's plenty of cyclicality there, they're in a healthy enough position, which Yellow was just not. Yellow had offered, I think, a rather significant raise package that didn't work out. I don't know if they could have pulled it off anyway, given what they would have to have had approved from their lenders. But I think that the unions are right now in a reasonably strong position, and that this particular case doesn't really undermine that. With Yellow, one last thing about them is that they're divesting themselves of Yellow Logistics. They announced this a couple of days before everything finally went down. It's their third-party logistics part. This

one sort of seemed like the part of the company that was doing well. It reminded me a little bit of Bed Bath & Beyond, where the buy-by-baby part was actually the most interesting part. Do you think that Yellow Logistics is going to have a future beyond this? Is someone going to buy this because it was perhaps the best part of things? Yeah, absolutely. It's the valuable asset, other than the physical assets of the tractors and trailers. It's a real business that has a good history, and it was growing well and is in the middle of the e-commerce revolution. Somebody's going to pick that up, and within bankruptcy protection, they'll be able to not put this out on a fire sale. They'll get

a reasonable market price from a competitive bidding process, I think. But as a standalone, I don't think that it can really go forward, given the bankruptcy situation. So, yeah, would expect somebody to buy it and that money to be distributed ultimately to the debt holders. Alas, not the shareholders. Let's move on to something a little brighter. We've got a lot of earnings coming this week. Not so much today, but SoFi's earnings came out today. I like this company. About a year ago, my husband said to me, You wanted an inexpensive stock with potential. We talked about this one. You took a small stake. It didn't go so well for me in the beginning. You gave me a little bit of a hard time about it.

It's been a bit of a ride, but these earnings were pretty strong. I think maybe I've redeemed myself a little. Members up 44%. Products up 43%. Revenue up 37%. Seems pretty strong. What do you think? Yeah. Are you in position to take a victory lap yet? Not yet. Definitely not yet. Yeah. I don't know where you entered. It's still about half of its all-time high. It peaked along with all the rest of tech late 2021. Despite the fact that it's had a good run lately and is at a 52-week high, it's not at an all-time high. It's got a double

from here. But it's an awfully smooth growth that they've had. Every quarter, it's gliding down year over year. 44% for new members, that's down from 46% the quarter before, 51% the quarter before that, 61% the quarter before that. So, that's the law of large numbers that you expect. Still, 44% growth after the second quarter. The year before, for the second quarter, in terms of members, not revenue, it had grown at 69%. So, they're adding a lot of members. I think they're in a good position. In terms of the model, full-service, asset-light, they don't have branches. They have a stadium named, but they don't have branches. I think that is more the future, particularly for their young, affluent clientele.

They've gotten away from what they were once upon a time, which was mostly originating student loans. That's less than 10% part of the business now. If you ignore the stock price, the business is doing very well in terms of its growth, other than the fact that it is not yet earning money. Given the age of the company, you can excuse, but the profits do have to show up for the stock ultimately to go much further. Yeah, that is true. They are not profitable. They did cut losses, though, by 50%. They're making progress there. They are saying they're going to get GAAP profitable for the fourth quarter. But what could stand in the way of that?

Of course, the economy. The economy looks pretty healthy. The second quarter GDP numbers out last week, 2.4% growth, I think. The early GDP Nowcast numbers are stronger than that for the third quarter. But, yeah, they need to be originating more loans. They need a healthy economy. And they need to, I think, be originating the right kind of loans. Their clientele, for the most part, is more affluent. It's going to be less risky. They securitize and sell off most of the loans. They don't hold onto them. But I think that What would get in the way also could be another expansion of the business beyond the very full-service offerings they have now.

Every time they expand, they're taking on some more costs to increase another side of the business. That is the thing I find a little concerning or worrying. They recently partnered with Expedia on SoFi Travel. They're now dipping their toes into the IPO market. They were part of the AudityTech IPO. I worry a little bit that they're going to try to take on too much too soon and, like you just said, spread themselves too thin. Yeah, they have put in their presentation PowerPoint, which you can get on the investor relations side of their website if you're interested.

They talk about the products being 9 million products. I don't even know what that means, exactly. That sounds like accounts. I think it's accounts, yeah. Of all the different kinds of products they have for their membership, I guess, since they speak in terms of members. It's a lot of different irons in the fire. That is part of the business of being full service. With Expedia, I don't know how much of that business they take on. It's just an outsourced thing. Yeah, more of a partnership. The IPO market, I get, they're not really in partnership with Audity. They're just getting some exposure to some of the IPO shares, which

they can then offer to their clientele. The more of those that they can get, I think the the more attractive they're going to be to a certain part of the banking sector that wants exposure to an IPO. That's reserved, for the most part, to other higher net worth individuals. You're not going to be able to get that much of an exposure through them, I don't think, but the feeling of having some is probably attractive to a certain part of their business. Yeah. It makes sense because it seems like they're trying to be the younger, cooler version of a big bank with some of those big bank characteristics. Yeah. They offer more services than many of the big banks. That is potentially going

to involve more costs, but they make up for that by not having the branches. To the extent that they maintain an efficient, lean website and app, they're in position to ultimately profit and profit quickly if they continue to scale for another year or two above 20% or 30% growth. Well, we started off with talking about a company that is in debt. Let's end with one. I think we might have a new meme stock on our hands. A new meme, an old name, Tupperware. Back in April, they filed an 8-K saying they might not be able to continue as a going concern. They were trading under $1. It's got around $700 million in debt. It's not looking good. But all of a sudden, the last couple of days, meme stock tripled in a couple of days,

trading around $3 a share. Now, it's not in danger of being delisted, but this isn't one I would touch with anybody's money. What about you? No, I think we've seen this movie before. It's not quite as doomed an enterprise, I would say, seemingly. It's got brand value, and it's got products that people actually to use and pay for. It's just taken on way too much debt. They're not a well-run, have not been a well-run company. But there's a core business there that's going to survive, a brand that's going to survive. It's just, with the debt involved, it's probably worth pretty close to zero. The market had gotten there, and now it's been captured by the meme crowds,

and the stock might go anywhere in the short-term, given the short-squeeze capacity of some people. Especially given how low the market cap is, it's still under $200 million. If you get enough people acting in concert with each other, you might be able to get this sort of wild ride and get out at the right point before it ultimately collapses back down to what it deserves to be at, which is something close to zero. Yeah. Not a game I like to play. I do hope the brand itself survives, even if the company doesn't. Yes. The brand has value. The brand will survive, and the products will survive. They'll just be elsewhere, I think. Indeed. Thanks for your time today, Bill!

Good to chat with you! Thank you! You often hear things like, boomers are out of touch, Gen Z is lazy. Why do we pit generations against each other? Best-selling author and business professor, Mauro Gian, tackles this way of thinking in his new book, The Perennials. I sat down with him to discuss the future of aging. Retirement age, it's become kind of controversial lately. We had that fight in France happening over raising the retirement age. You pointed out in the book that the retirement age in China is quite a bit younger than it is here in the U.S. How can individuals and governments really kind of rethink retirement and retirement age in particular? Yeah. Well, first of all, the French

have actually no excuse to protest, because on average, they retire at age 62 or 63, whereas here in the United States, on average, we retire at age 69 or 70, and in Japan, even later. So the French, of all people in the world, actually have it already quite good, right? Because they retire relatively early. But, you know, retirement has been oversold. Retirement stifles your mind. Retirement, you know, disconnects you from your social circles. Now that we live much, much longer, right, it doesn't make any sense to be in retirement since you're age 60 or 65.

The issue here is that we need to find ways for companies and other organizations not to discriminate against people in their 50s, 60s, and 70s, so that they can continue to work if they wish to do so. A separate problem, of course, is pensions. We've made some promises to people that they will be able to collect a public pension if they work a number of years. And of course, when people retire, then they have a claim on that pension. And now that we're living longer, that is putting a lot of financial pressure on Social

security in the U.S. and similar schemes around the world. So, we certainly need to rethink that. We need to encourage people to save money besides their state pension. And we need people to also consider working a little bit longer. If they choose to do so, I wouldn't mandate it, but I would provide people with the opportunity to do so if that's what they want to do. Yeah, it's not just public pensions. It's private pensions as well for certain organizations. It's also a concern. And when you talk about working longer, one of the things you talk about in the book is that most people have three careers, maybe even four careers, and that retraining becomes part of our lives, which I think it's happening now, but I don't think it's happening

at the scale perhaps that it might. It makes me think about some of the people that are perhaps in industries that are hard on the body, like a construction or truck driving or things like that. how do you see that multi-career focus playing out for people in different types of careers? So this trend is, as you said, incipient. So we only have in the United States, for example, maybe 5% or 6% of people switch careers, not switch jobs, but rather switch careers. So they were teachers and become programmers, right? I think that trend is going to continue for two very important reasons. One is that the economy constantly changes. And maybe when you were 20 years old, you made the wrong decision as to which career to pursue. So you should have a

chance at age 40 to essentially switch careers, right? The other reason, of course, is that technological change is making some careers less attractive and is making the jobs disappear. So now with AI, it's not just a manual labor, but it's also cognitive labor. And we're going to see much more of this. So in other words, we need to help people make transitions in life in a more flexible way, including the transition to another career. And that will require, as you said, lifelong learning. Now, as to physical workers, there's a limit as to for how long you can be a construction worker, for example. And typically, what companies in those or people in those occupations have done is they become self-employed, or they run a consulting business

for construction, or they stay at the company, but they become record keepers, or they perform some other kind of work as opposed to physical work. So, we need to, again, offer much more flexibility for those people who are in physical occupations. Because yes, I mean, once you turn 50 or 55, it becomes really difficult to continue being a construction worker, for example. Yeah, and the age of those industries keeps going up. So, reframing education seems to be something really important here. In the book, you touched on the idea that we're not really preparing young people for the future, because we can't prepare them for jobs that potentially don't even exist yet. So, as education becomes spread out through your life, how do you think

that changes the beginning of the educational experience? Yeah. Well, I think the education sector, and I've worked in it for my entire life, is the slowest one to change. I mean, everybody should blame us because not just schools, but also universities, we change very, very slowly. And as you said, we should be changing in terms of what are the jobs of the future in 20 years from now, as opposed to the rapidly growing job

or occupations today. So I think the online revolution with all of the new competition that is entering the education sector, I think that's going to be a big revulsive for a lot of established universities and schools to innovate, to become so much more open to new formats of learning and so on and so forth. And also keep in mind that younger people today learn in a very different way than the way that you and I used to learn, right?

They like more interactive teaching. They like digital. They like multimedia and so on and so forth. So the education sector has to change big time, because otherwise it's going to be very difficult for people to adapt to all of these economic and technological changes. Yeah. So, you see the future as education of being sort of more collaborative and less sort of lecture-driven. Absolutely. Because, look, when you take a look at here in the United States, what are the kinds of skills that employers are requiring? Well,

they do require, of course, certain technical skills, right? I mean, maybe, you know, accounting skills or math skills or whatever other kind of technical knowledge. But in addition to that, they're also requiring social skills. And we don't teach them that well. So, what do I mean by social skills. I mean the ability to work in teams. I mean the ability to negotiate. I mean emotional intelligence and so on and so forth. So those social skills are very important at work. And actually companies select people on the basis of those skills, but we don't teach them well at school or in university. Yeah, that is absolutely true. And one of the things you talked about too is the idea that a lot of people of all ages sort of want to work for younger bosses these days,

which I found was interesting. Yeah, there's that. Increasingly, more and more people have a boss who is younger. And this, of course, has been very typical in the tech sector, but it's spreading now throughout all of the industries in the economy. And then the other phenomenon is reverse mentoring. So it used to be the case that the mentor would be somebody older than the recipient of that mentorship. But now we have two-way mentoring going on in so many organizations. So those are really, really important changes. So again, I mean, age is becoming less and less relevant, as you can see in the workplace, right? Less and less relevant. That's why I think it's important to emphasize that the book is not just for people

who are approaching 50 or 60 years old. It's also for younger people so that they can make the right choices early on in their lives. As we get away from the sequential generation idea, does the attitude around investing change in general? Because traditionally, we've all been taught to save for retirement, to make money when you're young, to head toward that goal. If what you're talking about, and we get away from this idea of these age segments in life, does that change how people should be thinking about their money the whole way through? I think yes and no. No, because I think it's still a very good habit to save for retirement. Whenever I talk to people who are in their late 20s, early 30s,

they've got the first job or the second job, and I always tell them, take advantage of all of the tax incentives if you put money in savings accounts. Be wise. It's never going to be enough money. You also have to, you know, perhaps do other things to have a good retirement. But the answer is also yes, that things are going to change, because as I was telling you earlier, I think we need to fundamentally rethink retirement. And I think full retirement, you know, that you're 100% not working, meaning you have 100% of your time for leisure, I don't think it's a good idea, let's say, from the time you're 65 until you're 95. So for 30 years, because life expectancy has grown so much.

Exactly. It's like almost another lifetime. So I think most people slowly but surely will gravitate towards a formula in which they work a little bit and they make some money, but they also have a lot more leisure. And above everything else, they have a lot of flexibility. So, now with, for example, remote work, this is appealing to a lot of retirees, because they hated commuting. A lot of people retire, want to retire because of commuting. But now, more and more jobs don't require commuting, or at least they don't require it every day.

So, I think things are changing very quickly, and we're going to see, I think, a future in which people are going to be in semi-retirement or in hybrid retirement, if you want to put it that way. I think that's true. One of the things I've noticed is, a lot of the Uber drivers I've had have been retired. And I asked them, do you have to do this or are you doing this for fun? And a lot of times they're doing it, they like the extra money, but they have money coming in from their investments or from social security or pension, but they like the money because they feel like they can spend this money more easily and they like the interaction. They like to have stories. Exactly right. Exactly right.

They can chat to people. They have something to do. I mean, to spend 30 years, okay, 30 years in retirement without working or without volunteering your time, it's almost like a prison sentence, right? It's like you've been sentenced to retirement, to be in isolation, to have nothing to do. I don't think that is healthy. I don't think that's good. And that is the opposite of the way it is sold to people. Yeah, absolutely. Absolutely. I mean, and this is, again, an American thing. It's like you're supposed to be successful in life, right, if you can retire early, like at age 40. And I think we have to get rid of that cliche. I think it's very damaging. And I don't think

it is the best option for most people. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Deidre Willard. Thanks for listening. We'll see you tomorrow. We'll be right back.