TFI International Inc.

TFI, formerly known as TransForce, is a growing provider of shipping and logistics services in Canada, the U.S., and Mexico. Its businesses include Package and Courier (P&C), Less-Than-Truckload (LTL), Truckload (TL), and Logistics. The company continues to be valued at a meaningful discount to its larger U.S. peers which I think is attractive as the company focuses on niche markets to drive strong long-term returns in addition to focusing on revenue quality and operating efficiency (Operating Ratio).

Ests: 3Q20 4Q20 FY20 FY21

Revs 1.1b 1.2b 4.7 4.98b

EPS 0.90 0.93 3.70 4.23

-11% +0% -5% +14%

P=63.64, D/C=29%, div 1.16, yield=1.8%, TTM EPS=3.78, P/E=17X, FY21 P/E=15X

3Q20 1.21 vs 1.01 +20%, est .90 up from .67

Oct 22, 2020, P=63.64, TTM EPS=3.78, P/E=17X
Raised dividend 12% to 1.16, issued 275m of equity bringing D/C<30%
Revs -4.4%, ex fuel surcharge -1% to 1.16bn, adj OM 14.5% vs 11.4%, OpInc +26.6%, adj EBITDA +13.9%, incl 22.4m from CEWS contributed 0.18/sh to EPS, not every business received CEWS
P&C +5.4%, OpInc +5.6%, LTL -13.7%, OpInc +32%, TL -2.2%, OpInc +13.4%, Logistics +9%, OpInc +81%
CFO 189.6m vs 187m, FCF +27% to 164.8m
Consolidated OR 86.7% vs 89.5%, LTL OR 80.3% vs 87.4%, TL OR 86.8% vs 88%, driven by Specialized, US and Cdn conventional TL both slightly up
Logistics benefited from improved admin costs and optimization of last mile ops in US, was the largest contributor to improved OpInc, the company has been focused on this segment for a number of quarters from a strategic standpoint and improved efficiency, still have some low margin business to terminate (moderate rev growth in FY21 as new business replaces terminated business but significant profit growth, goal to get double digit EBIT margin)
Acquired 4 companies during 3Q, so far 2 in 4Q.
Guidance: Expect FY20 EPS at least $4, FCF at least 600m, implies 4Q EPS at least +24% to 1.15, est .93 (flat) with a small contribution from CEWS
Mgmt thinks FY21 will be better even without CEWS

Mid Quarter Update – Sept 15, 2020

Buying DLS Worldwide, TFII’s largest Logistics brokerage acquisition to date, for $225m, TTM Revs $550m, expected opinc $22.5m during first 4 full quarters following closing (initial restructuring costs given emphasis on full quarters?)
Stock essentially flat for 1.5 months after having a strong rally, stock is above pre-pandemic levels but stock was cheap going into pandemic, technical traders might look to other transport peers that haven’t rallied as well.

Mid Quarter Update – August 11, 2020

Issuing 4.4m shares, ~4.5% dilution, @ US $43.25

2Q20 1.07 vs 1.13 -5.3%, est .54 down from .86

July 27, 2020, P=54.01, TTM EPS 3.72, P/E=14.5X, FY21 P/E=15X
Reported adj EPS 1.04 vs 1.18 -11.9%, incl 40.4m or ~.34/sh benefit from CEWS (Canadian Emergency Wage Subsidy), Corp Exp 16.5m vs 6.7m, ex 40.4m CEWS, OpInc -31%
Revs -17.3%, ex fuel surcharge -13.4% to 1.025bn, OM 13.9% vs 12.6%
Adj OpInc -4.3% to 142.7m, adj EBITDA -1.8% to 232.1m CFO +61% to 227.9m
P&C -12% to 139.5m, OpInc -24%, LTL -28% to 158.4m, OpInc +10.9%, TL -17% to 471.2m, OpInc +3.2%, Logistics +8.2% to 265m, OpInc +20%
P&C revs/lb ex fuel +7.1%, avg weight -1.8%, shipments -17.6%, tonnage -19%
LTL revs per hundredweight ex fuel -6.4%, tonnage -22.8%, shipments -33.5%, avg weight +16%
TL Specialized TL had big improvement in OR, 78.6% vs 87%, likely significantly impacted by CEWS
Most markets improvements continued into July, solid cash flow and debt reduction.
Even excluding the CEWS it’s a good beat, continued improvement in operations should offset elimination of CEWS
Conference call comments to follow

1Q20 .80 vs .77, +4%, est .71 down from .81

Apr 21, 2020, P=32.41, TTM EPS=3.74, P/E=9X, FY20 P/E=10X
Reported adj EPS .83 but includes gain on rolling stock, partial factor for new shares
Revs +0.8%, ex fuel surcharge +1.4% to 1.1bn, OM 10.2% vs 9.8%, adj OpInc +5.7%
P&C -5.1% to 139.5m, OpInc -25%, LTL -13.4% to 180.2m, OpInc -3.2%, TL +1.2% to 533.5m, OpInc +5.5%, Logistics +19.8% to 268.8m, OpInc +22%
P&C tonnage -6.4% but rev/pound ex fuel +2.4%, LTL OR 90.2% vs 91.2%, tonnage -16.3%, rev/hundredweight ex fuel +3.5%, TL OR
Significantly worse margins in P&C but much better margins in LTL although OpInc down slightly, better margins and OpInc in TL and Logistics, mostly by shedding poor margin business.
CFO +19% to 191.7m benefited from tax deferrals from economic stimulus
Mgmt acted to reduce costs and shifts, have 130m in cash, 830m available on revolver, no maturities until June 2021
Last 2 weeks of March: P&C -28%, LTL -17%, TL -4%, Logistics +39%
1st 2 weeks of April: P&C -30%, LTL -39%, TL -20%, Logistics +12%
CEO confident they will not lose money in 2Q, not currently losing money in any of their sectors

Closed US “IPO” Feb 13th, issued 6.9m shares @ US $33.35, ~Cad $44.20, raised gross proceeds US $230.1m, ~ CAD $305m

4Q19 .93 vs .95 -2% ex .02 vs .01 gains, est .94 down from .98, FY19 EPS +11% to 3.88 vs 3.49

Feb 10, 2020, P=44.03, TTM EPS=3.88, P/E=11X, FY20 P/E=11X
Revs -1.2%, ex fuel surcharge +0.4% to 1.17bn, OM 10.8% vs 10.6%, adj OpInc +2.2%, OpEx ex D&A of PPE -0.5%
P&C -5.2% to 168mm, OpInc -9.2%, LTL -14% to 199.7m, OpInc -1.9%, TL +3.2% to 544.8m, OpInc +7.6%, Logistics +11.5% to 262.6m, OpInc +18.3%
FY19 Revs ex fuel surcharge +2.3%, adj OpInc +8%
P&C had tougher comp due to Canada Post strike last year.
In Outlook, mgmt. states “early indications of improvement with volumes and spot rates showing signs of stabilization”, continue to execute on efficiency initiatives
Offering 6m shares (~7% dilution) as “IPO” in the US, to list on NYSE as TFII, to repay some debt, could raise ~250m CAD
Good to see solid improvement in Logistics opinc, still room to improve recent acquisitions
Room for improvement of US TL, getting to similar operating ratio in Canada could drive 7-13m in profit improvement (.06-.12 in EPS), industry overcapacity is being reduced

3Q19 1.04 vs 1.04, est 1.06

Oct 24, 2019, P=42.09, TTM EPS=3.97, P/E=11X, FY20 P/E=10X
Raised dividend 8% to 1.04
Revs +1% to 1.3bn, ex fuel surcharge +3.4% to 1.17bn, adj OM 11.4% vs 12.2%, adj OpInc -3.7% ex gains, mgmt says opinc +3% but that includes gains.
P&C +0.2% to 154.8m, OpInc -3.3%, LTL -9.7% to 205.4m OpInc +1.3%, TL +7% to 557.2m, OpInc +6%, Logistics +9.4% to 256.8m, OpInc -11.8%,
In TL, US Revs -5.5% and CDN Revs -8.8% but Specialized TL Revs, ~50% of segment, + 24%.
Solid CFO and FCF
Mgmt working on a cost efficiency plan for Logistics and Last Mile, “major improvement in 2020”
Specialty TL flatbed still affected by impact from the steel tariffs which are now removed, should improve in 2020. Also being impacted by GM and Volvo Mack strike.
Decent results but softer than analyst estimates, share repurchases and stable earnings put them close to their FY19 guidance, mgmt. indicated in their outlook they think things have stabilized unless the economy deteriorates.
Mgmt comfortable with previous guidance of 3.90-4.00

FDX is valued at 10X trailing EPS, 4Q19 EPS was -15%, FY19 EPS was +1% to 15.52, mgmt. expects FY20 to decline mid-single digits.

FDX reported 1Q20 EPS -12% due to weakening global macro environment, increasing trade tensions, mix shift to lower-yielding services, and termination of Amazon business, partly offset by growth at FedEx Ground and higher yields at FedEx Freight, mgmt. now expects adj EPS $11-13 (-16 to 30%)

Express was the major source of weak earnings driven by international priority and air. US average daily package volume +0.6%, freight volume down in US and int’l priority. Express yields +1% in US but down 4% in US Deferred, -2% in Intl priority, -4% in Intl economy, -1.5% in Intl domestic. Express freight yields -3% in Intl priority and -13% in International domestic.

Ground average volume +7.5%, yield +1.9%. Freight average volume -3.8%, revs/shipment +2.7%

2Q19 1.13 vs .98, +15%, ex .05 gains, est 1.05

Apr 25, 2019, P=39.00, TTM EPS 3.79, P/E=10X, FY20 P/E=9X
Revs +1.5% to 1.34bn, ex fuel surcharge +2.3% to 1.19bn, adj OM 12.6% vs 11.7%, OpInc +10%
P&C -0.1% to 158.5m, adj OpInc -1.3%, LTL -8.4% to 219.1m, adj OpInc +17.4%, TL +8.6% to 570.4m, adj OpInc 18.2%, Logistics -0.8% to 244.9m, adj OpInc -5.7%
55% of revs were in Canada
LTL OpInc grew despite volume -20% due to better yield and quality of revenue and other cost efficiencies. TL experienced higher revenue/mile, lower costs, and a more efficient freight network, U.S. drove the improvement in OM.
Repurchased $5.6m of existing NCIB, adding another $1m. Purchased $64.8m in 2Q, $161.4m YTD
FY19 Guidance: Raised EPS from 3.80-3.90 to 3.90-4.00
Mgmt discussed how fears of tariffs caused customers to overbuy which put pressure on freight market which is now softening (or normalizing).
Mgmt confident that in this environment they can still execute their plan to enhance profitability via improved efficiencies, acquisition benefits, and cost savings. Company is performing better than its US peers and has a cheaper stock.
Still reducing unprofitable freight, Flatbed in Canada is challenged due to steel tariffs, will take a few quarters to get back to normal. Improved costs and operations in U.S. last mile could drive 20-30m over the next 2 years, irrational players impacting the market (and some shutting down)

1Q19 .75 vs .55, +37%, est .69

Apr 23, 2019, P=43.37, TTM EPS=3.64, P/E=12X, FY19 P/E=11X
Revs +2.9% to 1.23bn, ex fuel surcharge +3.4% to 1.1bn, adj OM 9.8% vs 7.6%, adj OpInc +34% to 107.5m, adj EBITDA +46% to 188.9m
P&C +3.2% to 146.9m, EBITDA +21% to 29m, LTL +2.2% to 208m, EBITDA +105% to 35.1m, TL +7.4% to 527.1m, EBITDA +43% to 106.5m, Logistics -5.2% to 224.3, EBITDA +22% to 25.8m
55% of revs were in Canada
Mgmt optimistic that economic conditions are supportive for the industry. Results continue to be outstanding and valuation is very low.
Pending acquisition of BeavEx in bankruptcy removes an unprofitable irrational player, also improves density of last mile network, adds limited overhead.
Mgmt delivering on their objectives to improve profitability despite weather challenges, probably a good chance of increasing their EPS guidance after 2Q.

4Q18 .92 vs .60, +53%, ex gain on rolling stock, est .83, FY18 EPS 3.44 vs 2.08 w 25% TR

Feb 27, 2019, P=40.97, TTM EPS=3.44, P/E=12X, FY19 P/E=11X
Revs +10.8% to 1.32bn, ex fuel surcharge +8.7% to 1.16bn, +6.3% organic, OM 10.6% vs 7.8%, OpInc +48% ex gains on rolling stock.
P&C +9.4%, OM 19.4% vs 17.4%, LTL +13.7%, OM 10.1% vs 6.5%, TL +9.8%, OM 9.9% vs 4.7%, Logistics +0.3%, OM ex impairment 6.5% vs 6%
Solid opex management, better fleet utilization, recorded 12.6m impairment in Logistics related to an acquisition in 2017 – difficulty in recruiting and retaining qualified subcontractors and inability to grow revenue impacted their expected cash flows, resulted in reversal of contingent consideration as minimum profitability levels will not be achieved.
Solid results, continues to beat estimates, valuation continues to be attractive as stock appears to be held down by the group in the US despite superior results.
Debt/Cap at 50% is elevated, debt of 1.6bn, 2.3X EBITDA so not bad.
Cautiously optimistic on 2019, watching fluctuations in demand but so far pricing and volumes holding up.
Outlook: FY19 EPS 3.80-3.90 (+10-13% ex gains on rolling stock) not factoring acquisitions, est 3.67

3Q18 1.04 vs .53, +96%, est .84 up from .67

Oct 22, 2018, P=44.11, Raised div 14% to .96, TTM EPS 3.19, P/E=14X, FY19 P/E=12X
Revs +9.4% to 1.29bn, ex fuel surcharge +5.3% +1% ex acquisition), OM 10.9% vs 5.7%, OpInc +103%, adj EBITDA +48% to 190m
P&C +2.5%, OM 18.1% vs 15.6%, LTL +4.8%, OM 11.2% vs 6.5%, TL +7.3%, OM 11.1% vs 3.4%, Logistics +2.1%, OM 7.2% vs 5.8%
CFO +29% to 167m
Record operating results again, margins improved in all segments, stock still looks cheap.
Raised FY EBITDA guidance to 665-675m, adj EPS to 3.35-3.43, well ahead of estimate of 3.25 and not far off FY19 estimate of 3.55, feel FY19 will be better than FY18.

2Q18 .99 vs .60, +65%, est .70

July 26, 2018, P=39.32, TTM EPS=2.68, P/E=15X, FY19 P/E=12X
Revs +4.3% to 1.3bn, ex fuel surcharge +0.8% to 1.16bn, OM 10.5% vs 6.5%, OpInc +64%, adj EBITDA +28% to 186.7m, significant improvement in TL and LTL
P&C +3.9%, OM 19% vs 16.8%, LTL +3.2% OM 10.2% vs 7.1%, TL +1.3%, OM 10.4% vs 4.6%, Logistics -3.2%, OM 8% vs 6%
CFO 145m vs 77m, FCF 97m vs 46.6m
Raised FY EBITDA guidance from 610-615m to 635-645m, now providing adj EPS guidance of 3.21-3.29, well ahead of estimate of 2.70 and even FY19 estimate of 3.00
They still have a few unprofitable deals to shed, looking at a few tuck-in M&A deals
Mgmt also optimistic for FY19

1Q18 .56 vs .35 est .39

Revs -0.6% to 1.196bn, ex fuel surcharge -2.7% to 1.06bn mostly due to fx and shedding unprofitable business, OM 5.5% vs 3.5%, OpInc +56.5%, adj EBITDA +17.8% to 129m
P&C -2.2%, OM 14.5% vs 10.8%, LTL -9.3%, OM 4.7% vs 4.1%, TL +0.2%, OM 5.9% vs 3.0%, Logistics -3.7%, OM 6.3% vs 5%, OpInc up across all segments, +31% in P&C and +96% in TL
Free cash flow 52.5m vs 29.5m, repurchased 35.6m in stock
Another blowout quarter as opinc improved across all segments driven by improved execution, better quality of freight, and better operating efficiency in U.S. TL
Conference Call comments to follow.

4Q17 .60 vs .54, est .48 down from .56, FY17 2.08 vs 1.96

Revs +3.9% to 1.18bn, ex fuel surcharge +2% to 1.06bn, OM 5.6% vs 6.1%, OpInc decreased 2.9m due to 4.6m lower gains on sale of equipment, EBITDA +2.4% to 131m
P&C -7.2%, OM 11.3% vs 9.4%, LTL +7.4%, OM 7.3% vs 7.3%, TL +4%, OM 4.7% vs 6.3%, Logistics +20.4%, OM 7.8% vs 10.8%
Industry freight rates are improving, capacity is tightening

3Q17 .53 vs .57 ex gains, est .54

Revs +18.3% to 1.15bn, ex fuel surcharge +17% to 1.05bn, OM 5.8% vs 7.7%
P&C -4.9%, OM 10.3% vs 10.2%, LTL +7.2%, OM 6.8% vs 8.0%, TL +39.6%, OM 3.4% vs 7.1%, Logistics +25.5%, OM 8.7% vs 8.7%
Encouraged by recent improvements in U.S TL market
Adj EBITDA +12.7% to 128.2m, OpInc -12.6%
Repaid 163m in debt after receiving 147m from non-core asset sales, also invested 83m in new equipment

2Q 17.63 vs .61, using 20% TR, ex .09 vs .05 gains, est was .51 down from .61

Took 129.8m goodwill write-off of US TL ops, also excluding some gains on asset sales
Revs +26% to 1.23bn, ex fuel surcharge +23% to 1.12bn, OM ex gains 6.5% vs 7.6%
P&C +2.6%, OM 10.5% vs 9.8%, LTL +9.8%, OM 7.8% vs 7.8%, TL +44.9%, OM 4.2% vs 7.5%, Logistics +36.9%, OM 9.2% vs 9.2%,
Adj EBITDA +30% to 154m, adj OpInc ex gains +6% to 72.7m incl 6.8m integration costs, adj EBT slightly up , EPS up .02 due to lower share count
Still difficult conditions in US TL but seeing improvements in other segments due to efficiency initiatives, I didn’t exclude the integration costs due to uncertainty as to how long those will continue for but the elimination of those should provide a lift to income, still a beat but not as much as the reported adjusted numbers suggest.

1Q17 .35 vs .32, est was .36, 2Q est is .64, FY17 est 2.33

Revs ex fuel surcharge +22% to 1.06bn, -1% ex CFI ,adj inc 42.1m vs 40.3m, 4% vs 4.6%
Results impacted by challenging market conditions in U.S. TL and integration costs – as expected – offset significant improved profitability in other business units.
Mgmt is cautiously optimistic on NA economy but do not expect significant improvement before year end. Will continue to be selective on acquisitions and to employ their disciplined management and continue to repay debt, integrating operations and facilities, reducing costs, investing in CFIs aged fleet, will eventually (18-24m) improve maintenance and fuel efficiency.
Ok quarter, stock sold off a bit in reaction to slight EPS miss but encouraged that they are still growing despite challenging environment in TL (lower miles and lower rev/mile), valuation is attractive considering stock has corrected around 17% from its 2016 highs and strong stock performance in 2016 and focus on improving costs and operations.