TFI International (TFII) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported first quarter adjusted diluted earnings per share (EPS) of $1.68, more than double compared to the previous year [3][7] - Total quarterly revenue increased by over 90% year-over-year to $2.2 billion, with operating income reaching $220 million, an increase of 116% over the prior year [6][8] - Net cash from operating activities was $138 million, down 11% year-over-year due to higher working capital needs [8][20] Business Segment Data and Key Metrics Changes - The P&C segment, representing 7% of total revenue, experienced a 5% decline in revenue but a 42% increase in operating income to $26.1 million, with an operating margin up 700 basis points to 20.9% [10] - The LTL segment, accounting for 45% of total revenue, generated $835 million in revenue before fuel surcharge, up from $132 million a year earlier, with operating income rising to $95 million [11] - Truckload revenue before fuel surcharge was $516 million, up 22% year-over-year, with operating income climbing 42% to $71 million [14] - The Logistics segment saw revenue before fuel surcharge increase by 15% to $435 million, with operating income growing to $35 million [18][19] Market Data and Key Metrics Changes - The Canadian LTL operation grew revenue before fuel surcharge by 8%, while the U.S. LTL business generated $696 million in revenue, reflecting strong integration post-acquisition [12][13] - The company noted a shortage of drivers and power, impacting service levels and customer demand [32][49] Company Strategy and Development Direction - The company aims to enhance efficiencies by focusing on internal execution, improving density, and optimizing pricing [23] - There is a strong emphasis on profitability and cash flow over simple growth, with plans to continue optimizing TForce Freight following last year's acquisition [5][24] - The management is preparing for potential M&A activity in Q2 and Q3, focusing on logistics and specialty truckload sectors [66][67] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating macroeconomic challenges, citing strong execution and internal opportunities [4][25] - The outlook for full-year EPS has been raised to a range of $6.50 to $6.75, reflecting optimism despite potential economic headwinds [24][81] - Management noted that current market conditions do not indicate a freight recession, with ongoing demand for services [32][49] Other Important Information - The company generated free cash flow of $92 million after higher equipment purchases, ending March with a debt to adjusted EBITDA ratio of 1.72 [20] - A private placement of $300 million in notes was completed to refinance a maturing term loan, maintaining a leverage-neutral position [21][22] Q&A Session Summary Question: Concerns about the end of the cycle and TFI's cyclical nature - Management indicated that TFI's business is less cyclical compared to traditional truckload operations, with significant opportunities for improvement in the U.S. LTL network [29][30] Question: Near-term trajectory of the P&C business - Management acknowledged a slowdown in B2C but noted improvements in B2B, expecting profitability to increase despite volume declines [35][36] Question: Update on U.S. LTL margin improvement - Management aims for an ADOR within the next two years, with ongoing efforts to optimize operations and reduce costs [39][40] Question: Guidance dependency on pricing power and M&A - Management clarified that the new guidance does not include M&A impacts and emphasized cost management and pricing power as key factors [44][45] Question: Impact of spot rates on contract rates - Management stated that while spot rates are declining, contract rates remain strong due to ongoing supply chain issues and demand for service [84][85]