TFI International, Inc. Q3 FY2026 earnings call

• Financial Strength: Generated $116 million in free cash flow for the quarter, bringing YTD total to over $440 million. Leverage ratio (adjusted funded debt to EBITDA) improved to 2.1x.
• Truckload Success: The segment delivered a phenomenal quarter driven by favorable exposure to right-end markets, specialized freight focus, and optimal asset mix. Revenue per truck per week rose 13%.
• US LTL Challenges: Management described the US LTL operation as "broken" due to low density, poor service, and high spot market costs. The partnership with UPS (GFP business) ends in January 2027, which may cause customer churn.
• Strategic Pivot in US LTL: To address structural issues, TFI is building a parallel non-union, asset-light network (currently ~1,000 shipments/day via Hercules) while maintaining the unionized operation. This aims to improve stability and reduce capital intensity.
• Logistics Growth: Strong performance driven by OEM partnerships (PACCAR, DTNA), recent acquisitions (data center logistics), and organic growth in last-mile services. Management highlighted this as a high-margin, asset-light growth engine.
• Cost Management: Addressing driver wage inflation in truckload by improving asset utilization and reducing empty miles. In LTL, managing third-party line-haul costs by bringing more volume in-house to avoid expensive spot market rates.

• Truckload: Revenue of $753 million (40% of segmented revenue), up 10% year-over-year. Operating income nearly doubled to $100 million. Adjusted Operating Ratio improved significantly to 86.7%. Return on Investor Capital (ROIC) increased to 8%.
• LTL: Revenue of $678 million (36% of segmented revenue), roughly flat year-over-year. Operating income was $44 million, including a non-cash impairment. Adjusted Operating Ratio was 91.3. ROIC was 11.1%.
• Logistics: Revenue of $437 million (23% of segmented revenue), up 19% year-over-year. Operating income jumped 59% to $49 million with an 11.3% margin. ROIC was 14.9%.

• Q4 Adjusted EPS: Expected between $1.30 and $1.40, representing up to a 28% year-over-year increase at the high end.
• Truckload Operating Ratio: Expectation of improvement of 400 to 500 basis points year-over-year.
• Logistics Operating Ratio: Expectation of improvement of 100 to 200 basis points year-over-year.
• LTL Operating Ratio: Expectation of deterioration of 0 to 100 basis points year-over-year (note: management clarified this refers to core OR worsening slightly due to transition costs, not operational decline).
• Net CapEx: Expected range of $225 million to $250 million (excluding real estate), demonstrating improved capital efficiency.
• 2027 Outlook: Management anticipates continued supply constraints in truckload aiding pricing, but soft demand. US LTL requires significant turnaround efforts; Canadian LTL remains strong. Logistics expected to continue growing organically.

• US LTL Operational Failure: Persistent issues with density, service levels, and cost control in the US LTL segment pose a significant risk to overall profitability.
• UPS Partnership Termination: The end of the six-year GFP partnership with UPS in early 2027 may lead to loss of customers who relied on this integrated solution.
• Labor Market Tightness: Shortage of drivers continues to drive wage inflation in truckload, requiring careful management of capacity and pricing.
• Macro Economic Uncertainty: Soft freight demand, particularly in building materials and retail, coupled with potential tariff impacts on steel transport in Canada, could pressure volumes.
• Execution Risk on Turnaround: The success of the US LTL turnaround depends heavily on new leadership and cultural changes; failure to stabilize operations could result in prolonged underperformance.

Q: Analyst asked about US LTL performance, specifically regarding density issues, fuel impact, and the upcoming end of the UPS partnership.

A: Management explained that US LTL suffers from low density, making fuel inflation a headwind unlike in Canada. The UPS partnership ends Jan 2027, potentially causing customer churn. Management acknowledged past failures in organic growth attempts due to weather and volume spikes overwhelming the unionized network. They are now hiring peer executives to change culture and are building a small non-union asset-light network to eventually complement or replace parts of the current structure.

Q: Analyst inquired if acquiring density is necessary for US LTL or if it can be built organically, given the union shop environment.

A: Management stated that organic density building in a union shop is extremely difficult due to labor flexibility issues. The strategy is to slowly build a non-union operation in parallel (currently ~1,000 shipments/day) to provide stability and better manage volume fluctuations without resorting to layoffs/hiring cycles. This mirrors the successful dual-network approach used in Canada.

Q: Analyst asked about the nature of the logistics growth, whether it is primarily brokerage, and the timeline for fixing US LTL profitability.

A: Logistics growth is driven by OEM partnerships, recent acquisitions in data center logistics, and organic last-mile expansion. It is a collection of asset-light businesses with high margins, not just commoditized brokerage. Regarding US LTL, management emphasized that after three years of investing in assets and tools without results, the issue is human/cultural. New leadership has been hired, and they expect improvements to take time, focusing on changing the mindset from indifference to accountability.

Q: Analyst questioned the feasibility of achieving $8+ EPS in future cycles excluding US LTL recovery, and near-term capital allocation priorities.

A: Management noted that reaching $8+ EPS would require both a return to normal freight demand and a successful turnaround of US LTL. Currently, the company is generating substantial free cash flow ($700-$800M projected for 2027). Given the stock price depression and industry uncertainty, management prefers share buybacks and small tuck-in acquisitions over large M&A, prioritizing shareholder returns through dividends and repurchases while waiting for clearer market signals.

Q: Analyst asked about the direction of US LTL service levels and tonnage/yield expectations for Q4.

A: Service levels deteriorated significantly in early 2026 due to weather and unmanaged volume spikes but are now stabilizing as volume normalized to ~20,000 shipments/day. Management stressed that service must improve before premium pricing can be sustained. For Q4, tonnage is expected to be flat vs Q3, with a slight YoY decline in core operating ratio due to transition costs, though management expects the underlying trend to begin improving in 2027.