Canadian trucking conglomerate TFI reports stronger ORs across the board

Some highlights from the earnings report and conference call of TFI International, the Canadian trucking and transport conglomerate that has made numerous acquisitions in recent years and operates them as separate subsidiaries. In the U.S., CFI and Transport America are their primary brands in the U.S. truckload business. It also is more integrated than most haulers in that it has a parcel delivery division in Canada, so the sort of last mile downstream add-on so broadly talked about in the industry has already been accomplished in Canada to a certain degree.

• Numerous trucking companies have talked about reducing their footprint to focus in on more reliable and profitable service. Evidence of that was clear in the TFI’s earnings report. The earnings release touted a 5% decline in operating expenses in 2018, “indirectly from an improvement in the quality of freight and rate per mile, enabling the Company to generate similar revenue to the prior year’s quarter while driving less miles, and therefore incurring far less operating cost.” In remarks more candid than investors and analysts normally hear on a quarterly conference call, Alain Bedard, chairman, president and CEO and the only TFI executive on the call, which is unusual, was frank in describing the situation at CFI and Transport America. “At CFI, on the quality of the revenue side, what we are seeing is that, it’s an improvement that’s an ongoing basis,” he said, according to a transcript of the call distributed by SeekingAlpha. “Every month, our average revenue per mile is improving. Now, are we as good as the best US carriers? (But) the quality of revenue, I don’t think so. We still have a young team. Our market intelligence is probably not as depth as the big, the great US carriers that we are competing with to a certain degree.” At Transport America, the company is burdened by some “dog deals,” he said. “Crazy stupid deals that will take probably another few months to get rid of.” Beyond that, Bedard said, “the quality of revenue at TCA is probably closer to what the good truckload guys in the US are today.” Later in the call, he talked more about some of the less-profitable deals in the U.S. truckload division. “We have some customers that don’t make any sense,” he said. “The OR is still 150 with this account.”

• On the big financial numbers, total revenue was up 4%, operating income rose 64% and net income per share climbed 65%. For the truckload segments, Bedard said the U.S. segment “is definitely a driver for us now and we view the improvement there as a sustainable trend.” Although truckload revenue ex of fuel charges was up only a modest amount, net income was up about 130%. Margins doubled to about 10.4%. Operating ratios were significantly improved across the board. The LTL OR was 89.8%, compared to 92.9% in the second quarter of 2017. The other quarter year-on-year comparisons were 94.5% vs 103% for U.S. Conventional Truckload; 86% vs. 88.3% for U.S. Specialized Truckload; 86.6% vs. 90.7% for Canada Truckload; and 89.5% vs. 93.5% for company-wide OR. Bedard said the LTL improvement in OR was attributable in part to its intermodal division. He described it as “a diamond in the rough, where we bought a few companies a few years ago and now we have a team there that’s very aggressive on cost and that makes all the difference.” Bedard also reiterated the paring of some business as a key to improvement in the LTL business. “We got rid of all those small shipments that nobody can make money,” he said.

• Bedard described the company’s strategy in his opening remarks: “We focus on operating efficiencies which means innovating to find the value-added solutions to our clients. We pursue an asset-light business model. We maintain a strong balance sheet and we seek accretive, bolt-on acquisition while maintaining a high level of discipline.” The asset-light approach contrasts with some significant asset-heavy numbers. For example, in the U.S. truckload segment, the company had a tractor count of 3,088 at the end of the quarter. In the Canadian segment, it was 719, and in the specialized truckload segment it was 1,407. As far as acquisitions, Bedard indicated nothing big was imminent. “M&A in every sector is something that we look at,” he said. “But…nothing big is going to come out of 2018. All the small tuck-ins here and there, yes. Anything big, I don’t think so. Not this year.”

• In contrast to the USA Truck earnings call, where executives said they were seeing OEMs fall behind on their deliveries, Bedard said that has not been the case at TFI companies. “We gave our orders early in the year and they are delivering the equipment according to the plan that was agreed upon between us and the manufacturer,” Bedard said. “So as an example, CFI gets 18 trucks a week. It was 15. We had an option to buy 100 more and we said, okay, let’s do it. So, now from 15, we are up to 18 a week. So, no issues for us.”