The CEO of TFI International (NYSE:TFII) hinted on Wednesday that the Canadian trucking and logistics company may be pursuing closer ties with UPS (NYSE:UPS) beyond the $800 million acquisition of its less-than-truckload division, UPS Freight.
“Don’t forget this discussion that we’re having with our friends in Atlanta,” Alain Bedard told financial analysts. “I think it may be way more than a transaction that we should be closing on soon.”
Bedard made the remarks after TFI posted its first-quarter financial results on Tuesday. Without naming UPS directly, he appeared to suggest that one area of potential collaboration could be with TFI’s Canada-based package and courier business, which includes parcel carrier Canpar.
“I think that because we have a relationship with those guys, can we expand more of this relationship in Canada working with them?” Bedard said. “Is there anything we can do with them? You know, time will tell. But we’re looking at every opportunity of what we can do.”
Bedard, who frequently makes free-wheeling comments in the quarterly analysts calls, did not offer specifics. But it came as TFI prepared to close on the UPS Freight acquisition this quarter after announcing the deal in January.
A ‘lean-and-mean’ future for UPS Freight under TFI
The deal, TFI’s largest acquisition to date, pole-vaults the Montreal-based firm to a position as one of the largest LTL providers in North America. It also will make the company’s revenue overwhelmingly U.S. in origin.
In many respects, closer ties are inevitable. UPS will continue to sell the rebranded UPS Freight unit for five years and provide back offices for three years under the terms of the deal with TFI.
The deal remains on track, Bedard noted, as does TFI’s plans to bring down costs under its ownership, operating as TForce Freight.
“Approaching the cost, as I’ve said many times, we have to reduce the cost there to be a lean and mean carrier,” Bedard said.
UPS Freight has struggled with profitability, though Bedard highlighted the division’s performance under UPS during the first quarter.
“We’re still a far cry from where we should be,” Bedard said.
TFI also provided a full-year earnings range of $3.85 to $4 per share, which accounts for the UPS Freight transaction. But Bedard characterized it as conservative estimate.
TFI began the year on solid footing: The company reported adjusted net income of $73.6 million, or 77 cents per share, on $1.15 billion in revenue. Revenue grew by 24%, while adjusted net income increased by 40% compared to a year ago.
From a revenue standpoint, only TFI’s LTL business didn’t grow. It dropped by 3% compared to a year ago.
The addition of UPS Freight, under TForce Freight, should change that. TFI’s plans for the division include revisiting shipper pricing and scaling back the real estate.
One thing Bedard didn’t mention: the potential impacts of cost-cutting plans for the 11,000 UPS Freight employees represented by the Teamsters union.
In the past, Bedard has said he doesn’t see the unionized division as a barrier to improving margins. His target, likely a conservative one, is to get TForce Freight to an operating ratio of 90 within three years.
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