TFI International Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Generated strong free cash flow of over $190 million despite industry volume slowdown. Total revenue before fuel surcharge was $1.7 billion, up from $1.6 billion year-over-year.
• Operating income was $115 million (6.7% margin) vs $152 million (9.4% margin) in prior year. Quarterly adjusted net income was $56 million, down from $93 million, and adjusted EPS was $0.76, down from $1.24 year-over-year.
• Maintained strong balance sheet with funded debt-to-EBITDA ratio of 2.21 at March end. Repurchased $56 million worth of shares and returned $94 million to shareholders during the quarter.
• Expect Q2 2025 EPS in range of $1.25 to $1.40 and full year CapEx to be approximately $200 million.

Segment Performance

• LTL: 39% of segmented revenue before fuel surcharge, down 13% year-over-year to $679 million. Operating income was $47 million (down from $85 million in the prior year), operating ratio 93.1% (vs 89.2% in Q1 2024), and return on invested capital (ROIC) was 14.4%.
• Truckload: 38% of segmented revenue before fuel surcharge, up from $398 million a year earlier due to the Daseke acquisition, totaling $666 million. Operating income was $49 million (up from $41 million in the prior year), operating ratio 93.7% (vs 89.6% in Q1 2024), and ROIC was 6.7%.
• Logistics: 22% of segmented revenue before fuel surcharge, $385 million (down from $442 million in Q1 2024). Logistics operating income was $31 million (down from $40 million in the prior year), operating margin 8.1% (vs 9.1% in Q1 2024), and ROIC was 17%.

Guidance

• Currently expect Q2 2025 EPS in the range of $1.25 to $1.40 based on trends seen so far and assuming no major macro environment change.
• For the full year 2025, expect CapEx to be approximately $200 million.

Risks

• Macro economic uncertainty impacting freight volume across the industry.
• Tariff-related uncertainty affecting industrial end markets, particularly impacting specialized truckload operations.
• Excess assets in specialty truckload leading to higher depreciation and interest costs.
• Port activity and trade uncertainty potentially impacting business volumes, especially in Q2 2025.

Question and Answer Q: Can you unpack more on the high and low end of the 2Q guide and thoughts on full year, including scenario analysis on recession?

A: Due to uncertainty, provided quarterly guidance of $1.25 to $1.40 for Q2. Uncertainty around tariffs and industrial end markets makes full year visibility limited, but expecting to see improvement as clarity on tariffs emerges.

Q: Update on operational improvement efficiency plans and pricing strategies given softness in manufacturing?

A: Implemented Optum for linehaul planning and starting Optum P&D operation in Canada. Pricing department working on better proposals for small and medium-sized accounts to grow those segments.

Q: Thoughts on meaningful shifts in customer buying patterns, market share, and M&A budgeting?

A: Customers in industrial sectors are hesitant due to tariff uncertainty, affecting volume. M&A in 2025 will be minimal, focusing on buying back TFI stock instead of major acquisitions.

Q: US LTL OR outlook for 2Q and full year, and EPS outlook?

A: Expect Q2 OR to improve sequentially by 200 basis points and continue improving towards 90 OR by end of 2025. EPS guidance for Q2 supports the outlook of $1.25 to $1.40.

Q: Impact of leadership changes on employee morale and competitive landscape in US LTL?

A: Leadership changes have boosted morale, focusing on growing small and medium-sized accounts and improving service. Working to regain market share by improving service quality and reducing missed pickups.

Q: Progress on claims ratio in US LTL and service side of new SMB accounts?

A: Claims ratio of 0.9% is unacceptable; expect improvement during 2025. New SMB accounts are not based on price but competitive pricing reflecting market, with focus on improving service to retain customers.

Q: Cross-border activity and visibility in guidance?

A: Cross-border truckload has backhaul issues, LTL transborder has softness. Guidance for Q2 is based on trends seen in early April, extrapolating considering typical Q2 trends.

Q: P&C side, B2C market competitiveness and percentage?

A: B2C is growing but competitive, with density and fuel cost changes impacting. Working to manage pricing and service in this segment.

Q: Free cash flow, working capital trend, and logistics segment moving pieces?

A: Free cash flow driven by earnings, CapEx, and working capital. Logistics segment affected by OEM truck production declines, but Canadian and US logistics sides expected to improve, with truck moving business expected to rebound in late 2025.

Q: Update on M&A plans, spin-off, and goals before feeling done?

A: No sizable M&A in 2025 due to uncertainty. Spin-off of Truckload division still makes sense but timing depends on market conditions and improving OR; focusing on turning around TForce Freight to improve OR towards best-in-class levels.