Motley Fool Money - 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

This episode is brought to you by KolaGard. Do you know what's really scary? Not screening for colon cancer when you turn 45. The KoloGard test is non-invasive, requires no special prep or time off work, and ships right to your door. In just three simple steps, KolaGar takes the scare out of colon cancer screening. If you're 45 or older and at average risk, ask your health care provider about the KoloGard test. KoloGard is available by prescription only. Learn more or request a prescription today at KolaGar.com slash screen. Is a trucking company meltdown, a cautionary tale for the future? Motley Fool Money starts now. I'm Deidra Willard here with Motley Fool analyst Bill Barker.

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-truck load 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, and they were in negotiations with the drivers.

It's a union shop, and they could not get to a price that was going to work. They didn't really have that much freedom on the company's 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, and that really wasn't going to happen. So negotiations broke down, and they really stopped taking new orders. the last week and sort of kept delivering the things that were already in the system, but their customers fled. And then 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. And they had big loan payments coming due soon. Yeah, so there's a couple of things that happened that Teamsters negotiation, that's around July 24th is when that sort of broke down. So 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 sort of finished up with that. Now it seems like we're waiting for bankruptcy notification.

Do you think this is Chapter 11 and restructure or Chapter 7, and they just try to sell everything off? I'm not sure. There aren't that many details out there. I think that 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 kind of the low cost and the low reliability provider in the space. So I think that there are going to be higher prices across the LTL, less than truckload universe going forward, because sort of everybody else charged a little bit more and was more reliable. I mean, they were more worth, as sort of the outcome of the market interactions approves, they were worth more money to do the service than Yellow was. They were just not very, you know, they were used by a lot of the people who were looking for the cheapest price.

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? Simple enough.

Yes, simple enough. You take somebody who was able to capture 9, 10% of the market. That's down from where it once upon a time was. 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 L-TL 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 a scramble to be able to fulfill all the demand that's now out there. Well, it's a little bit of good news because the e-commerce sector and the freight sector has been down a little bit. So maybe that's good news for them? Well, I'd say it's definitely good news for them. And because things are a little lighter, the economy has shifted more toward experiences rather than goods, as we've come out of COVID. COVID. So there was a little bit of slack in the system, and prices had come down, and now they'll go back up. It's a cyclical economy there. But the general economy is healthy.

So this was not a particularly bad part of the cycle for the trucking industry. It was just a little bit lighter than it had been. Well, 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? I mean, 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.

And fortunately, the loan was made during the Trump administration, and the report was issued by a 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, 08, 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, and 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. So 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. It's been a busy summer for Teamsters.

They recently negotiated their contract with UPS. They 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 auto-workers 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 they have to be, wages have to be raised quite a bit. That's a cycle that ends up potentially extending inflation. But this is sort of an isolated situation. The Teamsters negotiated pretty successfully, I would say, with UPS. I would assume the auto workers, 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, and I don't know that they could have pulled it off anyway, given what they would 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 were 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 bedbath and beyond where the buy-by baby part was actually the most interesting part. So 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. And so 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, you would expect somebody to buy it. and that money to be distributed ultimately to, you know, the debt holders. Last 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. And this company, 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. He took a small stake. It didn't go so well for me in the beginning, he 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. Not yet. Definitely not yet. Yeah, it's still, I don't know where you entered. It's still about half of its all-time high. It's kind of peaked along with all the rest of tech, sort of late 2021. So despite the fact that it's had a good run lately, and is it a 52-week high, it's not an all-time high, and it's got to sort of double from here.

But it's an awfully smooth growth that they've had. It really is 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. And 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. They don't have branches. So 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 a less than 10 percent part of the business now. So, 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, which, 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 percent, so they're making progress there. And they are saying they're going to get gap 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 in 4 tenths, 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, so they need a healthy economy, and they need to, I think, be originating the right kind of loans. And their clientele, for the most part, is more affluent. So it's going to be less risky.

They securitize and sell off most of the loans. They don't hold on to 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 sort of 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 sort of dipping their toes into the IPO market.

They were part of the AutoD Tech IPO. I worry a little bit that they're going to try to take on too much too soon and kind of, 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, and they talk about the products being 9 million products. I don't even know what that means exactly. sounds like accounts, but 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. You know, with Expedia, I don't know how much of that really business they take on. It's just sort of an outsourced thing. Yeah, more of a partnership. The IPO market, I get. they're not really in partnership with Audit. They're just getting some exposure to some of the

IPO shares, which they can then offer to their clientele. And the more of those that they can get, I think 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, you know, higher net worth individuals. So 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. 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, and that is potentially going to

involve more costs, but they make up for that by not having the branches. So to the extent that they maintain a 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 percent 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 AK saying they might not be able to continue as a going concern. They were trading under a dollar.

It's got around $700 million in debt. It's not looking good, but all of a sudden, the last couple days, it went meme stock. It went about tripled in a couple of days, trading around $3 a share. So now it's not in danger of being delayed. listed, 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 use and pay for. It's just taken on way too much debt, and they're not a well-run, have

not been a well-run company. But there's a, there's a, there's a, there's a a business there that's going to survive, a brand that's going to survive. With the debt involved, it's probably worth pretty close to zero, and 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-squeez capacity of some people, especially given how low the market cap is, it's still under 200 million. So, you know, 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. So the brand will survive, and the products will survive. will survive. They'll just be elsewhere, I think. Indeed. Thanks for your time today, Bill. Good to chat with you. Often hear things like boomers are out of touch. Gen Z is lazy. Why do we pit generations against each other? Bestselling author and business professor Moro Giane 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 worked a number of years. And, of course, when people retire, then they have a claim of 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 as 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 five or six percent of people switch careers, not switch jobs, but right.

other 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-keeping. or they do 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, once you turn 50 or 55, it becomes really difficult to continue being a construction worker, for example. Yeah, 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, we, you know, 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 revolts 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 way, 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 is 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 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. And that's why I think it's important to emphasize the other 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 sort of head toward that goal. If what you're talking about, and we get away from this idea of these sort of like age segments in life, does that change how people should be thinking about their money the whole way through? I think yes and no. So no, because I think it's still a very good habit to save for retirement. So 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 of 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 or 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're going 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 ask them, you know, do you have to do this or, you know, 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 like it's almost like a prison sentence, right? It's like you're sent 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. 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 Deidro Willard. Thanks for listening. We'll see you tomorrow.