TFI International Inc. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Overall Strategy: Focus on fundamentals like quality of service, freight quality, and cost management. Strong cash flow generation; solid financial position to pursue strategic M&A, invest in the business, and return capital to shareholders. Daseke acquisition added $329 million to Q2 revenue before fuel surcharge and over $23 million to operating income, with a $20M non-recurring restructuring charge.
• Segment-Specific: LTL performance with US, Canadian, and P&C details; Truckload performance including Daseke integration and specialized vs. conventional; Logistics strong results with 22% revenue contribution, 22% YOY revenue growth, and 54% YOY operating income growth.
• Cash Flow and Balance Sheet: Generated nearly $250 million net cash from operating activities in Q2, up from $200 million YOY; free cash flow $151 million, up from $138 million YOY; funded debt-to-EBITDA ratio 2.15; quarterly dividend increased 14% to $0.40 per share.

Segment Performance

• LTL: Represented 40% of segment revenue before fuel surcharge. US LTL: Revenue before fuel surcharge $548 million, flat YOY; operating income $51 million, up 2% YOY; tonnage up 8%, revenue per shipment up 7%; operating ratio 90.8 (70 basis points better YOY), ROIC $15.4 million. Canadian LTL: Revenue before fuel surcharge $144 million, up 12% YOY; operating income $35 million, up from $34 million; shipments up 14%, weight and revenue per shipment down 4.5% and 1.2% respectively; NOI 75.6%, ROIC 19.1. P&C: Revenue before fuel surcharge $109 million, down 6.0% YOY; operating income $24 million, down 11.1% YOY; ROIC 77.9.
• Truckload: Represented 37% of segment revenue before fuel surcharge. Revenue before fuel surcharge $738 million, up 79.6% YOY (due to Daseke acquisition); operating income $83 million, up 25.8% YOY; OR 88.7%. Specialized Truckload: Revenue before fuel surcharge $665 million, up 98.5% YOY; operating income $75 million, up 38.9% YOY; revenue per truck per week up 2%, truck count up >70%; OR 88.7%, ROIC 7.3. Canadian Conventional Truckload: Revenue before fuel surcharge $76 million, down 5.2% YOY; operating income $8 million, down 33.3% YOY; OR 89.3%, ROIC 8.9.
• Logistics: Represented 22% of segment revenue before fuel surcharge. Revenue before fuel surcharge up 22% YOY; operating income up 54% YOY; operating margin 11.4% (improved from 9.1% YOY); ROIC 20.5.

Guidance

• Full-year EPS expected in range of $6.75 to $7.
• Full-year free cash flow expected in range of $825 million to $900 million.
• Net CapEx expected $275 million to $300 million.
• Intend to pay down $500 million to $600 million of debt this year, repaid over $100 million in Q2. Guidance unchanged from prior call.

Risks

• Weak freight market conditions impacting performance across segments.
• Potential pricing pressure in US LTL due to capacity additions by peers.
• Impact of Canadian rail strike on intermodal LTL, with shipper diversions away from rail lanes causing both positive and negative effects.
• High IT and admin costs in certain segments, such as high IT costs at Daseke compared to TFI's Truckload operations.

Question and Answer

• Q: Ravi Shanker at Morgan Stanley asks about seasonality and cycle optimism: A: Alain Bédard says it's too early, market still tough, focus on efficiency; 2024 likely difficult, guidance unchanged, Q3/Q4 expected tough, 2025 may improve but focus on efficiency now.
• Q: Ken Hoexter at Bank of America asks about Logistics results: A: Alain Bédard says Logistics results are strong, proud of the team, looking at LTL or Logistics M&A in 2025, leverage strong for future M&A.
• Q: Walter Spracklin at RBC Capital Markets asks about macro and Canadian rail strike: A: Alain Bédard says rail strike had mixed impact, market likely bottomed but not improving soon, US election could affect 2025, focused on cost reduction.
• Q: Tom Wadewitz at UBS asks about US LTL salespeople mandate: A: Alain Bédard says focus on increasing weight per shipment, picking up more shipments per stop, promoting GFP, and focusing on customers near terminals to reduce P&D miles.
• Q: Brian Ossenbeck at JPMorgan asks about US LTL network and M&A: A: Alain Bédard says reducing US LTL real estate capacity, focusing on leaner network for potential M&A, planning to be more strategic in US LTL with improved leverage post-debt repayment.
• Q: Jason Seidl at TD Cowen asks about Daseke and Canadian rail strike: A: Alain Bédard says Daseke integration progressing, focusing on reducing IT and admin costs, has plans for Canadian rail strike but hopes for resolution.
• Q: Konark Gupta at Scotia Capital asks about Daseke OR and FedEx divestiture: A: Alain Bédard says Daseke integration improving OR, focusing on reducing admin costs, sees FedEx divestiture as positive for market and TFI.
• Q: Jordan Alliger at Goldman Sachs asks about LTL service: A: Alain Bédard says service is priority, changing culture to prioritize pickup and reduce missed pickups, improving linehaul service by moving from rail to road, and focusing on cost-service balance.
• Q: Daniel Imbro of Stephens asks about US LTL back half outlook: A: Alain Bédard says focus on cost reduction, admin costs still high, market likely steady, need to do more with less to break 90 OR.
• Q: Benoit Poirier at Desjardins Capital Markets asks about M&A leverage and 2025 plans: A: Alain Bédard says leverage strong, well-positioned for $2B-$3B M&A in late 2025, focused on reducing debt and improving segments for future deals.
• Q: Bascome Majors at Susquehanna asks about spin-off and future moves: A: Alain Bédard says spin-off to happen under his watch, need to digest Daseke first, focused on improving TForce Freight and other segments before major M&A.
• Q: Kevin Chiang at CIBC asks about US LTL OR shift and P&C Chinese e-commerce: A: Alain Bédard says US LTL OR shift to 2025, P&C affected by e-commerce moving freight in-house, leading to pressure on revenue per shipment.