TFI International, Inc. Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Solid performance in Q1 despite weak freight environment, with self-help efforts and team work contributing.
• Focus on service quality and revenue per ship, with tonnage inflecting positive in Q1 leading to 12% increase in revenue per shipment.
• Ongoing transformation rooted in service-driven sustainable top-line improvement program, with much work left on cost control.
• Completed acquisition of Daseke, with contribution expected in Q2 and potential to enhance financial results.
• Balance sheet and liquidity: generated $137M free cash flow in Q1, closed $500M term loan, ended quarter with funded debt-to-EBITDA ratio of 1.6.
• Declared dividend of $0.40 per share, 14% higher than prior-year quarter.

Segment Performance

• P&C: Represents 6% of segment revenue before fuel surcharge. Revenue before fuel surcharge down 8% due to lower weight per shipment and fewer shipments. Operating income $18M (margin 18%), down from prior-year $27M (margin 24%). Return on invested capital 25.7%.
• LTL: 42% of segment revenue before fuel surcharge. Revenue before fuel surcharge down 1%, operating income $67M (up 15%, operating margin up 140 basis points). Canadian LTL: revenue before fuel surcharge up 8% (9% increase in shipments, claim ratio 0.2%, ROIC 19.1%). US LTL: revenue before fuel surcharge $552M (down 3%), core LTL tonnage up 7%, weight per shipment up 13%, revenue per shipment up 12%, operating ratio 92.6%, ROIC 15.2%.
• Truckload: 24% of segment revenue before fuel surcharge. Revenue before fuel surcharge $398M (down 4%). Specialized segment: revenue before fuel surcharge $321M (down 5%, operating ratio 89%, ROIC 9.5%). Canadian base conventional truckload: revenue before fuel surcharge slightly up to $78M, adjusted operating ratio 91%, ROIC 10.4%.
• Logistics: 27% of segment revenue before fuel surcharge. Revenue before fuel surcharge up 24%, operating income up 27% to $40M, operating ratio 91%, ROIC 19%.

Guidance

• Introduced 2024 EPS outlook range of $6.75 to $7.
• Expect full year free cash flow in range of $825M to $900M, with net CapEx $275M to $300M.
• Plan to pay down $500M to $600M of debt, targeting funded debt-to-EBITDA ratio under 1.7 by year-end.

Risks

• Tough freight environment impacting Truckload segment, with weak market and pressure in Canadian van division.
• Driver Inc. competition in Canada affecting Canadian base conventional truckload, leading to higher operating ratio and lower ROIC.
• Uncertainty in US freight market, with anticipation of recession not changing before 2025 due to election year and customer wait-and-see approach.
• P&C segment challenges in Q1, though expecting improvement in subsequent quarters but with small revenue contribution.

Question and Answer

• Q: Brian Ossenbeck asked about assumptions under EPS guidance and TForce Freight momentum. A: Alain Bédard stated Q1 was worse than anticipated, adjusting EPS outlook due to tough Truckload market and P&C challenges, but seeing improvement potential in TForce Freight with focus on heavier freight and service improvements.
• Q: Jordan Alliger inquired about service improvements and sustainability of growth. A: Alain Bédard mentioned ongoing service improvements like monitoring missed pickups, aiming for 88 OR, and seeing potential for growth if freight market cooperates, but noting challenges in current freight environment.
• Q: Ravi Shanker asked about path to 88 OR in LTL and macro vs idiosyncratic actions. A: Alain Bédard stated 88 OR target is based on controlling cost, efficiency, and productivity, not relying on market improvement, focusing on picking right freight and improving density.
• Q: Tom Wadewitz questioned acquisition pacing and LTL OR sensitivity. A: Alain Bédard discussed challenges with carve-out acquisitions like UPS Freight, but saw progress with Daseke, emphasizing focus on digesting acquisitions and controlling debt, while LTL OR improvement is controlled by picking right freight and improving density, not solely market-dependent.
• Q: Kevin Chiang asked about Q1 guidance and P&C momentum. A: Alain Bédard explained conservatism in guidance due to tough freight environment, with P&C expected to show improvement in Q2 and Q3 as actions taken in Q1 start to bear fruit, but biggest concern remains Truckload market.