TFI International Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 9, 2024

There are 15 speakers on the call.

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TFI International 4th Quarter 2023 Results Conference Call. Callers will be limited to one question and one follow-up. Again, that's one question and a follow-up so that we can get to as many callers as possible.

Operator

Further instructions for entering the queue will be provided at that time. Please be advised that this conference call will contain statements that are forward looking in Church and subject to a number of risks and uncertainties that could cause actual results to differ materially. Also, I would like to remind everyone that this call is being recorded on Friday, February 9, 2024. I will now turn the call over to Elaine Bedard, Chairman, President and Chief Executive Officer of TFI International. Please go ahead, sir.

Speaker 1

Well, thank you, operator, and thank you, everyone, for joining us today. Our results released yesterday after the close reflects strong performance by our talented team beating our expectation and once again we're entering a new year in the strongest position in our company's history. This come despite weaker market demand throughout most of the year and is a testament to our adherence to long standing operating principle regardless of cyclical freight demand. In particular, I've referred many times to our overarching focus on profitability and cash flow, which is apparent in the 4th quarter results that I'll walk us through. It's this profitability and cash flow that permits us to execute on overarching principles of our growth strategy, which involve investing in the business pursuing attractive M and A opportunities and consistently returning capital to shoulders and doing all of this even when the market is weak.

Speaker 1

This approach to the business is apparent in our 4th quarter results and indeed our performance throughout 2023. In fact, we were able to allocate roughly $2,000,000,000 of Capital to announce acquisition and share repurchase during the year. Let's turn Q4 results, which include operating income of just under $200,000,000 compared to $217,000,000 in the year ago quarter. Our operating margin of 11.8% compares to 13.4% a year earlier and I should mention that these results include a $23,000,000 reduction in the contribution from assets held for sale. Our adjusted net income of $147,000,000 was down only slightly from $152,000,000 in the Q4 of 2022 and adjusted EPS came in at $1.71 down TEN's focus on generating LT cash flow, we're most pleased with our net cash from operating activity, which was 303,000,000 up sharply from a year ago, dollars 248,000,000 and bringing our full year total to just over $1,000,000,000 again up over the prior year despite market conditions.

Speaker 1

Equally important from a strategic standpoint, our free cash flow of 240 For the full year 2023, we produced more than $9 per share of free cash flow, which is remarkable giving our company's size, which is again a reflection of the hard work of our team throughout the year. Now let's dig in deeper into our 4 business segments, starting with P and C, which represents 7% of our segment revenue before fuel surcharge. The number of package was down 4% with pricing a little softer as well, resulting in a 5% decline in revenue before fuel surcharge. Similarly, our operating income of $35,000,000 was down just slightly from $38,000,000 prior year and our margin fell by 70 basis points to 28%. Return on invested capital for P&C was 28.1.

Speaker 1

We believe this solid performance by our P&C business in spite of the weaker demand environment reflects unique market exposure and as always our close attention to cost controls. Next, let's discuss LTL, now 41 percent of segment revenue before fuel surcharge. Our top line revenue before fuel surcharge was down 3%, while our operating income of $71,000,000 compares to $88,000,000 a year earlier. This includes $7,000,000 net loss on assets held for sale. Digging deeper within LTL, Canadian revenue before fuel surcharge grew 12% year over year and a 12% increase in shipment benefiting from the STG acquisition in 2023.

Speaker 1

Return on invested capital for Canadian LTL was 20.1 relative to 24% a year earlier. Regarding our ongoing turnaround at U. S. LTL, the The name of the game for us in addition to all the costs and efficiencies we have discussed over time is quality of revenue through improved service. This is evidenced by our last quarter claim ratio of 0.5% for U.

Speaker 1

S. LTL, 0.5% of revenue. Okay for U. S. LTL down from 1.5% a year earlier and our second to non Canadian LTL claims ratio of just 0.1 percent of revenue.

Speaker 1

Our revenue before fuel surcharge of $563,000,000 was down from 601,000,000 in the Q4 of 2022 and while volumes were down 5%, we were able to increase revenue per shipment as weight increased by 10%. Our operating ratio of 91% compares to 90.4% in a year ago period And our return on invested capital for U. S. LTL was 15.1% compared to the prior year at 23.8%. Next, let's discuss truckload, which is 24% of segment revenue before fuel surcharge.

Speaker 1

Benefiting from acquisition, our volume was slightly higher than a year ago, while rates were weaker. Front load revenue before fuel surcharge are just under $400,000,000 was virtually flat with the year ago period, down just a percent, while operating income of $51,000,000 was 1. Taking a look within truckload, our specialized exposure remains a plus. We were able to capitalize on self help opportunities and increase revenue per truck. Benefiting from this, Revenue before fuel surcharge are almost entirely flat at $224,000,000 Our specialized truckload operating ratio was 87 relative to $87,400,000 in the prior year period and our return on invested capital was $10,300,000 compared to 13.4 Turning to our Canadian based conventional truckload business, revenue before fuel surcharge also held almost percent.

Speaker 1

Our adjusted operating ratio of 89% compares to compares to relative to 81.1 a year ago and our return on invested capital was 12.6, down from 21.3. Let's finish up our business segment review with logistics, which was 28% of segmented revenue before fuel surcharge and turned in remarkably strong performance during the quarter. Revenue before fuel surcharge climbed 24% year over year, while operating income Jump 60 Percent TO 55,000,000. These strong results benefited from our very successful Let's shift gears and discuss our strong balance sheet and liquidity, which we view as a strategic asset. During the Q4, we drove free cash flow of $244,000,000 as I mentioned and also completed the private placement of $500,000,000 of fixed rate interest only debt as I referred to in our last call.

Speaker 1

As a result, we ended the year with a funded debt to EBITDA ratio of 1.49 and a weighted average interest rate of 4.4 that's entirely fixed with an overall weighted average duration of 8.3 years. Looking ahead, it's this strong financial foundation that will allow us to continue to make timely and intelligent investments regardless of the cycle and especially during time of market weaknesses. An excellent example of our recently announced acquisition Omdaskey expect to close during the upcoming Q2 and 1 of the 12 announced M and A transactions during 2023. We very much like this highly complementary acquisition as it scaled our truckload segment into a leading North American provider while bolstering our capability in the specialized market. Our other major focus this year is the ongoing turnaround of our LTL operation.

Speaker 1

And longer term, we see the potential Agency to allow investors to own a separate specialized truckload business in addition to a very attractive LTL, P&C and Logistics Business. Another advantage afforded us Our strong financial position is the ability to return excess capital to our shoulders whenever possible. And we're pleased that during the Q4, Our Board of Directors raised the quarterly dividend by another 14%. So with that, operator, we're ready for Q and A. If

Operator

Thank you. Our first question is from Scott Group with Wolfe Research. Please proceed with your question.

Speaker 2

Hey, thanks. Good morning. Elaine, it's Friday morning, so I may have missed it. Did you guys provide any earnings guidance? I know you typically do.

Speaker 1

No, Scott. We have not provided any guidance, okay? So what we'll do is We'll do that after Q1. As you know, we're looking at this Daseke acquisition. So this is why we're very cautious in terms of talking about 2024 with this major acquisition.

Speaker 1

But what I could say is that for sure when we come up with our guidance, Let's say, sometimes in April, this year, we did about $6.18 EPS, diluted EPS. In 'twenty four, what we could say is that our EPS guidance will not start with a 6, we'll probably start with something like a 7 somewhere. But because of we're very cautious about Q1 and the Daseke Okay. Acquisition. So this is why we prefer to and like most of our peers, okay, just stay silent right now for 2024 guidance.

Speaker 1

We'll happily give more guidance, okay, for 'twenty four after we come out with our Q1.

Speaker 2

Okay, fair enough. And then I'm guessing there's going to be a bunch of questions on LTL, but we haven't heard from you since the Daseke acquisition. Maybe just sort of talk through the rationale of that deal, sort of what you see in terms of the margin potential and how that fits in with some of the

Speaker 3

stuff you talked about in

Operator

the release regarding potential spin?

Speaker 1

You know what, Scott, we're very happy with this transaction at DESKIE. I mean, when I look at all the different business units that these guys are operating today, I mean, we're very happy. I mean, these guys run a pretty, pretty good operation. I'm talking the operation. If you exclude the head office costs, Okay, which is a very high burden for the Daseke numbers.

Speaker 1

If you exclude that, I mean, these guys are running a Pretty good operation in 'twenty three when you look at market condition. I mean, if you look at our global specialty truckload OR in Q4, we're running an 87 OR us, okay, in a very difficult environment, right? Okay. Our Canadian van business is running an 89 OR in Q4, again, in a very difficult Just look at our peers in the U. S.

Speaker 1

And you will understand that. I would say that these guys running the show over their business unit, the guy that runs the operation like the Lone Star, the Boyd and the RMG and all these guys, They run pretty close to what we do. Now, it doesn't show because head office is a big burden on the results of the company. I'm very, very happy with this acquisition that's going to close in Q2. And these guys will all even help us On our own U.

Speaker 1

S. Operation, because now it's giving us size. And like we said publicly, Scott, We believe, okay, that down the road, okay, this conglomerate discount at TFI that we see today, If we do, okay, like we were just talking about trying to have TFI in to 2 business units instead of 1. I think that this will also create some very interesting issues for our shoulders down the road. So Daseke helps us create size, Okay.

Speaker 1

In our U. S. Truckload operation, specialized truckload. We don't want to be in the van world. A year and a half ago, we sold CFI to Heartland, Okay.

Speaker 1

Because we didn't want to be in the van, but we really like specialty truckload, the flatbed operation, the tank and all that. We do really well. And we believe that the U. S. And Canada down the road 24, 25, 26, a lot of investment will be done in infrastructure, Sure, road buildings, schools, etcetera, etcetera.

Speaker 1

And for sure, that will help the Daseke operation and our own Canadian specialty truckload. So, I think our timing is really good, like our timing of selling CFI was really opportunistic.

Operator

Our next question is from James Monaghan with Wells Fargo. Please proceed with your question.

Speaker 4

Hey, guys. Just wanted to ask one of the questions that I'm hoping on that you guys helped you out today. Just can we just get a sense of what you're expecting in terms of OR improvement across the coming year. And just given the sense that there is some uncertainty, understanding what you might be able to get in like more flattish volume environment versus a place where maybe volumes improve more significantly.

Speaker 1

Yes. Well, you know what, James, we said it. I mean, the 'twenty four plan for us is to deliver at 88 OR, right? We're at 91 OR right now at Q4. This is not acceptable for sure.

Speaker 1

I mean, the guys have worked hard because you have to understand where we were 3 years ago, 2 years ago. Okay. 91, okay, is acceptable. Okay. But 2,491 is not acceptable and our plan is to be an 88OR for 'twenty four.

Speaker 1

Also part of our plan, okay, is stop shedding volume, Right. So if you look at our Q4, our volume is down again 4%, right? Year to date, we're down 13%, in Q4, we're down 4%. So We took action in terms of improving our service, okay, like I mentioned on the script there. Our claim ratio is down like there's So tomorrow, we're at 0.5 percent of revenue, so that helps the customer experience with us.

Speaker 1

We made a major improvement in our asset base, our fleet, in terms of training, our drivers, etcetera, etcetera. So we believe that we can deliver in 'twenty four, Something like an 88OR and stop losing volume. Okay, the market has been under pressure In 'twenty three, yes, YRC is gone, okay, that helped the market, but still As we are working on improving our service, reducing our costs and being more efficient and our goal Like I said many, many times, for 2024 is to run an 88 OR globally for our U. S. LTL.

Speaker 4

Got it. At this point, do you think you'll be growing shipments in 2024 based off of where you are now?

Speaker 5

Well, I

Speaker 1

don't think that this will come in Q1, Q2. I think that we have change in leadership, Okay, of our sales team. We have refocused our people there. So, we believe that This company should be running by the end of 24,000, 24,000 shipments a day, right, to 25,000 shipments a day, which is very low compared to when we bought the company. When we bought UPS Freight, they were doing about 32,000 shipments a day.

Speaker 1

Now, like we said before, a third of those shipments didn't make any sense, Right. So we had to do a lot of cleanup over the years of freight that don't fit, freight that was not for us. But that is mostly done, 99% done now. So now it's time for us to start growing again with the market By improving our service, we have more linehauls now on the road than ever, right? So we use less rail, so our road service is way better than rail.

Speaker 1

So that's going to slowly help us improve because when we bought company. A lot of the lane haul was done on rail. So now slowly we're moving less on rail and more on road that will help improve our service. The fact that our equipment is in much better shape, our average age is about a little over 4 years down compared to 7.5, 8 years average when we bought the company. We had to make some major investment there.

Speaker 1

Same thing also with our terminals, same thing with our training of our people. So And don't forget that for 2.5 years, we were also very focused on our TSA moving away from UPS. Now this is done. I mean, in April of 'twenty four, this is going to be the 3 year anniversary of our acquisition of UPS rate. So we're done, okay, with our TSA with UBS.

Speaker 1

So that helps us focus more of our IT resources into building the IT of the future instead of the IT of the 1960s. Thank you very much.

Operator

You're welcome. Our next question is from Ravi Shanker with Morgan Stanley. Please proceed with your question.

Speaker 1

Great. Thanks. Good morning, Alain. If I can just push you

Speaker 6

a little bit on the guidance commentary or lack thereof. I completely understand that there is very little visibility on macro, but at the same time, you have been able to give us Several kind of moving parts and targets on the guide for 2024 and you don't have a large US TL business. So What exactly are you kind of what are the moving parts or kind of what are you waiting for more clarity for before we know what the 24 number is? I also wanted to confirm that the 7 handle that you said is an organic number.

Speaker 1

Yes, Yes. So really, Ravi, the big thing for us is what we said when we acquired Daseke is that it's going to be neutral to our EPS in 20 24, right? So I just want to make sure, okay, that this is going to be the case. So let's say we take over April 1st, We come out after 2 or 3 weeks. We'll be in a better position to know exactly, okay, is this going to be EPS neutral, okay, or Is this going to be like maybe $0.10 $0.15 for 2024?

Speaker 1

We said that it's going to be about $0.50 minimum for 2025, the Daseke acquisition. So what I'm saying that this is like Our EPS probably will start with a 7. This is organic. This got nothing to do with Daseke because like we said, Daseke is neutral, right, in 2024, right? So the reason is we're looking at Market condition, we're looking at our truckload operation that is really suffering not so much on the OR, Okay.

Speaker 1

But on the volume, the top line, because if you look at my OR, my specialty truckload, my truckload, Okay. My specialty truckload even more. I mean, it's a tough line that's killing me, right? Because my OR is very close to what it was in 'twenty two, but we lose so much top line. So this is why to give Guidance right now for 2024, when we look at so far what we've seen in January, It's a tough January.

Speaker 1

I mean, weather wise, it's been terrible, okay? So that's why we want to be cautious like most of our peers, right? And what we can say is that we believe that $0.24 is EPS, diluted EPS It's not going to be a $6 thing. It's going to be a minimum of $7 now. I mean, we'll quantify that after Q1 because we want to know also if we are still in a very depressed volume environment.

Speaker 1

Don't forget, if you look at our P and C, again, we have a 71, 72 OR in our Q4, But we lose top line. We lose 4% volume. Now one of my peers came out in North America with 7% loss of top line volume wise, Right. So, it's the market they saw. And before giving a guidance, I don't want to make the mistake that I made in 'twenty three where we were probably a little bit too optimistic about volume and we missed 2 quarters in a row, the consensus.

Speaker 6

Very helpful, Alain. That is understandable. And maybe as a quick follow-up, you mentioned the conglomerate discount earlier in your remarks. Can you just elaborate a little bit more on your What does in due course mean? Is that a 2024 event or 2025 event?

Speaker 6

And kind of how are you looking at the separate businesses kind of together or apart?

Speaker 1

Yes. You know what, Ravi, it's not 24, that's for sure. I mean, 24 for us is really the year we take over Daseke And we deliver on our promise of T Force rate running at 88OR, right? So that's really the focus. But By the fall of 'twenty four, we start to get ready for 'twenty five, okay?

Speaker 1

In terms of maybe other deals, okay, significant deals for us and at the same time this thing that we call that project SFI, okay, which is separating The truckload from the rest. We believe that this will create a lot of value. We also believe that This project may not be just for TFI. Maybe some other specialty truckload may join this project to create size, right? So it's an open discussion that we're going to have with other parties, probably late in the fall 'twenty four to be ready to do something into 'twenty five, Ravi.

Speaker 6

Thanks, Alain.

Speaker 1

Good short term. I mean, when you look at, I would say between the end of 'twenty five, I mean, we should be fixed on that.

Operator

Our next question is from Jordan Alliger with Goldman Sachs. Please proceed with your question.

Speaker 7

Yes, hi, morning. Can you maybe talk a little bit Good morning to the factors that continue to impact U. S. LTL profitability on an adjusted basis year over year, that $50,000,000 or so in EBIT, which is down versus a year ago. And then when you think about the shape of 2024 and all the stuff you're working on in U.

Speaker 7

S. LTL, And when can we return to positive year over year EBIT growth in that division?

Speaker 1

Yes, I think that positive growth year over year in the U. S. LTL will happen in 'twenty four, right? So in 'twenty three, We had to go through this negotiation with the Teamster contract, which increased our costs per hour by about 7%. We made a lot of progress on the cost side, Well, we kept losing volume year over year.

Speaker 1

So I think that this is going to be a thing of the past. Sometimes in 'twenty four, maybe not Q1, Q2, but Down the road in Q3, Q4, we believe that finally by improving our service, okay, we'll be able to be in a position where we start growing again. And growing top line will help us grow the bottom line at the same time. The other thing also that is important Notice is our GFP operation in 'twenty three was affected badly as of Q2 by an issue with some customers, okay, that were not really doing what they were supposed to do. So we addressed that late in 'twenty three.

Speaker 1

So we should be in a better position to start growing our GFP franchise in 'twenty four that will help also our LTL operation, U. S. LTL operation. So it's a question of Service, okay. One also of issues we have that we're working on fixing is The customer experience with us when it comes to billing customers.

Speaker 1

So, for years years, Okay. We were going through a system that was not really probably the best in the world and we have lots of issues that hinders the relationship we have with customers. So this is also a project that we have for 2024 to finally come up with something that is fair and reasonable for our customer. I mean, this is not something that we encounter in Canada. I don't think that our peers in the U.

Speaker 1

S. Have the same We do with billing customers and for sure our churn because of that our churn of customers is way too high compared to probably our U. S. Peers or what we do in Canada. So this is another thing that the guys are working on.

Speaker 1

The churn over there at T Force rate in the mind of the previous management team was normal. For us, it's not normal. I mean, our churn is way too high compared to what we do us in Canada or I think what our peers are doing in the U.

Speaker 7

S. Got it. And then just a quick follow-up along all those lines. Can you maybe talk a little bit to again on the U. S.

Speaker 7

LTL, I know revenue per 100weight probably due to mix has been down, but can you talk a little bit about core pricing, contractual renewals and what sort of magnitude you're getting?

Speaker 1

I think pricing is pretty good, guys. What's Killing us is the volume. I think our pricing, our revenue per shipment is up, our weight per shipment finally is up, Okay. Because if you look at our weight per shipment, we're still way behind my peers. I mean, as we're like hauling feathers compared to what we do in Canada or what my peers are doing in the U.

Speaker 1

S. But our weight per shipment is up 10%, finally, okay, we're able to do that. But we're still way, way, way below my peers average, right? Peers average is probably like £1500 and me, I'm still stuck at 11 something. So, we're heading in the right direction, but again, you're paid by the £100 on a shipment.

Speaker 1

So, The lighter shipment that you haul, less money you get. So this is you don't have to be a rocket scientist to understand that. And this is why we've changed the focus of our sales team to try to change the mix and we're heading in the right direction there. Our revenue per shipment ex fuel is up and that's the way to go. In terms of pricing, I think our peers are very smart, okay.

Speaker 1

They understand that everybody is in this business to make money and not just all freight just for the pleasure of hauling freight. So that's the beauty of that U. S. LTL is that our peers are smart. So we like to compete with peers that are smart Because they're about making money.

Speaker 1

Thank you.

Speaker 8

Welcome.

Operator

Our next question is from Jason Seidl with TD Cowen. Please proceed with your question.

Speaker 8

Thank you, operator. Good morning, Elaine.

Speaker 1

Good morning, Jason.

Speaker 8

Wanted to stay on U. S. LTL for a little bit, really nice job in the quarter with that claims ratio. Where do you think it can go from there and sort of what has gotten us to drop a whole point off that number?

Speaker 1

You know what, Jason, When we look at that, I mean, the culture at T Force REIT at the time was this 1.52% of revenue was normal. And we said that, no, guys, this is not normal. I mean, if you look at our peers in the U. S, if you look at what we do in Canada, I mean, in Canada, we are revenue, which is acceptable. So what we did is we took some of our Canadian folks, Okay.

Speaker 1

And they work with our U. S. Team. And we were able to solve the problem at the source, right? So this is an experience where our customers experience dealing with us on at least on the claim side, The experience is way better than it was a year ago.

Speaker 1

So we're trying to do the same thing also. Like I said earlier in the call, The billing, the way we bill customers, I mean, there's way too many mistakes. We make way too many correction. And this is something that in the past in the mind of the management then it was acceptable. Okay.

Speaker 1

We just make mistake and we just correct them. Okay. But as we say, no, no, no, no, no, no, no. That's not the way to do it. So Now software that we use, the tools that we have, the people, because there has been a lot of Moving Parts with People.

Speaker 1

We lost people that were there. I'm talking 10 years ago. So This is where we are investing big time in 24 to improve the experience, okay, customers with us on the billing, customer service and all that. And we should see some major improvements during the course of 'twenty four and that will help us grow our business, Score volume because if you're a shipper and you say, well, okay, I could deal with ABC and then I deal with T Force Freight And it's a nightmare because those guys, they build me wrong, they send me a credit, etcetera. I mean, this is not professional, Right.

Speaker 1

So this is another aspect of improving service with customers that we're working on over and above the delivering of the freight.

Speaker 8

I think if you guys improve ease of use and also your claims ratio, that should also help you in the pricing department going forward as well.

Speaker 1

Absolutely.

Speaker 8

I want to jump on a little bit in near term here and then a clarification. So how should we think about the U. S. LTL OR on a sequential basis from 4Q to 1Q given that a lot of your peers have called out bad weather in January. And then you mentioned an 88OR for LTL.

Speaker 8

Is that an exit rate for the year or is that full year total?

Speaker 1

No, that's full year, Jason. For sure, Q1 is going to be a tough quarter for us. I mean, we're not going to be a sub-ninety OR in Q1. I don't think so. But I think that for the year, okay, that's the plan, that's the commitment of our team to deliver an 88 OR for the year, but not in Q1.

Speaker 1

Q1 for sure has been terrible.

Speaker 8

Got you. I appreciate the color, Elaine.

Speaker 1

Pleasure, Jason.

Operator

Our next question is from Ken Hoexter with Bank of America. Please proceed with your

Speaker 3

Hey, great. Good morning, Elaine. So obviously significant strides that you've mentioned on the 0.5% claims, but noted costs are still

Speaker 9

slide. So how much is

Speaker 3

still from the legacy UPS expense that rolls off and what is still under your control? And then just You threw out the 10% increase in weight per shipment. You mentioned last quarter that was something you were very focused on. What do you focus on and how do you change that?

Speaker 1

Yes, that's a very good question, Ken. I mean, like we said, I mean, in terms of the claim, I mean, we have nothing to do with, Let's see what happened 2, 3 years ago. So all of this is behind us. I mean, when we took over the company, I mean, we severed the past. And so Our claim today is whatever our claim are based on what the operation is today.

Speaker 1

Now in terms of Future, where we could be and all that. I mean, the company is very well positioned to start growing in terms of volume. I forgot what was your second question, Ken. Oh, no. Just the

Speaker 3

first one was just how much of the legacy UPS expenses? Like what do you still control once that goes off? So when you're done going from 9,188, this has nothing to do with the cost rolling off in April, this is just your own internal cost? No. Okay.

Speaker 3

And then the second one, part of that was the weight per shipment focus.

Speaker 1

What Yes, excuse me. Yes. The weight per shipment is something that we've been working at for day 1, because we said look at our peers, Nobody is hauling a 1,000 pound shipment on average, nobody. So why are we doing that? Well, because our focus has been with the previous owner on retail only, right?

Speaker 1

So this is what we're trying to change with our sales team and say, guys, I mean, retail is good, but let's try to move more industrial freight like most of our peers are doing. So The target is to slowly get closer to the average weight per shipment that our PSR because you're paid by the panel, right? So that's number 1. And we've said it many, many times also. What we're trying to do is to reduce the time that our drivers are driving between each and every stop because they have to drive an average of about 10 miles between each and every stop, which is nonsense.

Speaker 1

We drive less than 5 miles in Canada between each and every stop and the density in Canada is not the same as the density in the U. S. So that's another focus in terms of Reducing the cost, okay, of our shipping labor shipping costs, right? So reduce the miles, Focus closer to your terminal and stop delivering, let's say, a ship in 70 miles away from your terminal because this doesn't make any sense. Now, all this is takes time, right?

Speaker 1

So, we bought the company about 2.5 years ago. We came in there. There was a sales team. The sales leadership has changed, right? A year ago, we started making some changes at the sales leadership.

Speaker 1

We're beefing up the team now with some members of the TFI team in other sectors. So we should start to see some improvements in 'twenty four in terms of growth. We should also start to see improvement in our service. We're moving more freight on the road, line haul, road versus rail, Okay. Then in 'twenty three, to improve service at the same time.

Speaker 1

Our costs also are under Control because we have better equipment. Our MPG is comparable to our peers now because our fleet is It's got a normal age versus 2 years ago, we had a fleet that was way too old with an MPG that was way too low. So all this is up for you as improved service.

Speaker 3

Great. And for my quick follow-up on the spin, just want to understand why you chose to Spin the truckload as opposed to the LTL into an independent given the strides, given the pure, pure plays. Just wonder your thought on Why Not That?

Speaker 1

Yes. Because at the end of the day, I mean, if you look at What we have P and C is very small, right? It's only $500,000,000 $600,000,000 U. S. Of revenue ex fuel.

Speaker 1

So it's really small. So after truckload is gone, what are we left with? It's really an LPA and a logistics company and very different than our peers. Just look at our logistics, Ken, in Q4. We came out with an 88 OR.

Speaker 1

Most of my peers are down like 40%, 50%. 1 of my peers OR is 100. That peer has got LTL and logistics. His LTL is great. His logistics is running 100 OR.

Speaker 1

As we run our logistics very efficiently and we make a lot of money at it, our return invested capital is through the roof. So I think that the combination of LTL and logistics made a lot of sense if you make money with logistics, right? If your return invested capital is about the same, so if you are running, let's say, Your LTL at an 85 OR, okay, with a return invested capital at 25 and your logistics is running 98 OR with a return invested capital at 4, well that doesn't make any sense to have the 2. So I would agree with you that then you do the spin off of only your LTL. But it's different at TFI because the way we run the logistics, We're about making money, that's just volume.

Speaker 1

So, if you look at my Q4, Excluding GHT acquisition, I'm flat, okay, on my OE. So my peers are down 30%, 40%, 50%. 1 of my peers, like I said, is running 100 OR. We're very different and our logistics will keep growing, Ken. I mean, for sure, but smart.

Speaker 1

We're not in the business to do logistics at 2%.

Speaker 3

Wonderful. Alain, appreciate the time. Thank you.

Speaker 1

Pleasure, Ken.

Operator

Our next question is from Walter Spracklin with RBC Capital Markets. Please proceed with your question. Yes. Thanks very much. Good morning, Alain.

Speaker 10

Good morning, Walter. So Going back to the spin and you mentioned the conglomerate discount and I know in the past you've kind of talked about your P and C in Canada is having been already consolidated, not a lot of room for you to grow by acquisition. It's a really premium asset and I bet would fit nicely into a lot of other organizations that would see it as strategic. Is that something in that conglomerate discount kind of avenue that you would it's obviously we put Something out on that in but love to hear your thoughts on how you see the P&C division in Canada.

Speaker 1

Well, like you just said, Walter, the problem we have with our P and C is that it's so good, right? And except organically, we can grow it. I mean, there's nothing really of size that we could do in Canada, Right. So we can't buy ABC, we could buy we cannot there's not much we could do on M and A on P and C. So If you go back to the waste in 2014, 2015, we could not grow the waste at the time.

Speaker 1

We had a fantastic business that was called matric and we couldn't grow it. And people said, well, this is probably where they'll lay $500,000,000 or $500,000,000 and then we said no, we're going to sell it. And we sold it to GFL for $800,000,000 at the time. So If you look at our P and C, it's a diamond. It produces a ton of free cash flow.

Speaker 1

It's a gem. The problem we have is same as the waste. Our waste business at the time was also a gem, right? But same story is we can't grow, right, except organically. So For sure right now, Walter, our plan is to keep growing organically our P and C.

Speaker 1

We're trying to We're having some discussion with players right now to try to do more for them, okay, versus You know what the situation is, but our real focus is, like I said on the call, for 2024 is our U. S. LTL. We have to deliver that famous 88 wire and we have to do this Daseke deal and get ready for 'twenty five because we believe that this will create a lot of value for our shoulders if we could strike this deal in 'twenty five. And we also believe that maybe this spin off is not just going to be about the TFI assets, Maybe other assets will be part of that deal, okay, because we have a value proposition that is second to none to other parties if they want to join us.

Speaker 1

So now going back to your question about P and C, this is why at the end of the day, we'll have to make a decision I'm the road, Walter, but it's not going to be 'twenty four because I'm too busy in 'twenty four with everything that we're doing and our team is the same. But our P and C team, they're really focused. I think that in 'twenty four, We will start growing organically. It's not easy, okay, in 'twenty four. If you look at my Q4, my volume is down, what, 3%, 4% again quarter over quarter.

Speaker 1

The market is soft. Hopefully, 'twenty four, things will start to get better. Okay.

Speaker 10

And then my follow-up question is on your reference to the next deal. How much of that is when you're ready as opposed to when there's an opportunity. You always mentioned there's a bunch of Larger players that you're always in talks with, could it be that the timing works and this is a 'twenty four deal or is it Possible that this happens in 'twenty five and maybe not at all depending on if it's things that are outside of your control and timing. Just help me understand a little bit how that will play out this larger kind of LTL Logistics acquisition in a potential 'twenty five framework.

Speaker 1

But you know what, Walter, the big difference between when we bought UPS Freight and Warren Buying Daseke. UPS rate was a very difficult deal to do because it was a carve out and The company was not making any money. The OR was about 110, the fleet was a disaster, etcetera, etcetera. Daseke is a different story. I mean, Daseke will run a sub-ninety OR within 6 to 12 months in my mind, okay?

Speaker 1

The operating groups there are very, very, very good. I mean, there's a few things that we'll work with them to fix. But in general, this is an easy transaction for us compared to UPS rate, which was a very complex one. So with that in mind, okay, what I'm saying is that once we do Daseke early in Q2, If something comes along before the end of 'twenty four that makes sense, okay, financially, Even before we do the spin off, we are in position to do it. Why?

Speaker 1

Because Daseke is not a big rock in our shoe. They run a very, very good operation, okay. And I think that To bring those guys to a sub-nine EUR, it's not going to take 5 years, okay. It will be very short, Same market condition as we have today, right? If market condition, freight changes in 'twenty four late or into 25, that's going to make it much easier even there.

Speaker 1

So to answer your question, yes, we're doing Daseke, yes, we're working on this spin up, but If a good opportunity comes along late 'twenty four into the LTL or into the logistics world in the U. S, we're in.

Operator

Our next question is from Jason Seidl with TD Cowen. Please proceed with your question.

Speaker 8

Hey, operator. Hey, thanks for Taking my follow-up. Along those lines, you made a comment about potentially growing your specialty truckload a little bit for a potential spin. I guess two questions. Geographically, where would you be looking to do that?

Speaker 8

Number 1. Number 2, what types of specialty do you think would be additive to make that a more attractive asset on the spin? And 3, would it have to be done before a potential exiting of the P and C business or could you do it do you need to do it after?

Speaker 1

Well, Jason, you know what, first of all, it's got to be U. S. Because in Canada, there's not much in terms of size, right? So it's got to be U. S.

Speaker 1

What we like in specialty is We're big fan of tanks. We're big fan of flatbed and dump operation, Right. So that is really our focus. We're not big fan of reefer, okay. So this is really our focus.

Speaker 1

And if you look at DESCY, I mean, that's a perfect fit for us, right? And in terms of do we have to do P and C? Yes, no, no, I mean, P and C in my mind is maybe something may happen down the road. But right now, our focus is really, like I just explained, is Let's deliver our U. S.

Speaker 1

LTL, let's do the Daseke deal. And if an opportunity comes along, okay, in late 'twenty four into LTL or logistics in the U. S. We're ready to look at it. Why is that?

Speaker 1

Because Daseke It's not the same difficulty for us as UPS rate was. UPS was A lot of work, it's a carve out, it's complex, it's big, etcetera, etcetera. Daseke, to me, it's small, it's 1 $5,000,000,000 revenue, dollars 1,600,000,000 in the U. S, dollars 100,000,000 in Canada. And the operation is very well run.

Speaker 1

There's A few things that will work with the boys over there, but to me, I mean, it's day night versus the UPS

Speaker 8

Makes sense, Alain. Thank you for the time again.

Speaker 1

Pleasure, Jason.

Operator

Our next question is from Tom Wadewitz with UBS. Please proceed with your question.

Speaker 11

Yes, great. Good morning, Elaine. Wanted to I know you've gotten a bunch on U. S. LTL, but wanted to ask another one on that.

Speaker 11

You've had, I mean, obviously the yellow situation Provided a lift.

Operator

Yes.

Speaker 11

I think the way that kind of flowed through to you was initially good, but then maybe a little bit disappointing on tonnage and keeping for the shipment. Yes. Yes. And so and then you You're showing improvement in service with the cargo claims ratio down a lot. So I guess I just want to get your sense of how much visibility you have To the improvement and to things being on track, the 88 OR is that 90% cost driven and you have a lot of conviction, or is it fifty-fifty with revenue and you still could have Some kind of volatility around the shipments and the pricing performance.

Speaker 11

So just I guess some more thoughts on the trajectory on U. S. LTL.

Speaker 1

You know what, Tom, our experience with revenue, growing revenue at T4 has not been too good, right? So if you look at our frac record for 2.5 years, I mean, we were never able to grow revenue over there. Why? Because our churn is too high, because our service was not up to par to our peers, etcetera, etcetera. So this is when we talk about a DTE OR, It's going to be like 80% today based on how good can we shrink cost today, right to get to the 300 basis points versus what we are today at Q4.

Speaker 1

Now, We've made some changes, okay. We've improved our claims, okay. Like we said, we are improving our line haul, Okay, just in time, because we do more on the road than on the rail versus, let's say, 2 years ago or a year ago. But still, Okay. We have to improve the customer experience dealing with us on billing, okay, where there's too many mistakes, like I said earlier in the call.

Speaker 1

So this is an ongoing process in 'twenty four. Our sales team also has to be more focused on the freight we need, not the freight that's there, okay, that we don't need. So it's again a cultural change that guys, okay, retail freight is Good. Industrial freight is better because it's heavier, we get more money. Close Customers to our terminal is better, right, than customers that are 100 miles away from our terminal.

Speaker 1

All this kind of education of our sales team and focusing on the right thing and also reducing the churn, okay, with our customers. Our churn is too high. So these are all things that during the course of 'twenty four, we have to make some major improvement. Like we said on the script And our press release, we were successful on claim, okay, because that was a major issue of dealing with T Force rate is Lane. This is a disaster.

Speaker 1

So that's been fixed, okay, and we're doing well on that. Now, we have to improve continuously improve our service, and this is going to be the goal. But if you ask me today, okay, to get to the EDOR, okay, how are you going to get to there? I would say 80% of that will be saving money, being more efficient, doing more with less. And hopefully our sales team and our sales leadership start to deliver some growth year over year in terms of the shipment count.

Speaker 11

Right. Okay. Maybe just a couple more quick ones on that. So if you look at So you're saying volume up, I think, for shipments in second half is would you in U. S.

Speaker 11

LTL, would you also expect revenue per 100weight to be up in second half, so the pricing lever too. And then just wondered if you could give a little more kind of detail on how much

Speaker 1

Yes. So right now, What I could say, Tom, is that we're doing our own line haul for about 56% or 57% of all miles. So rail is doing probably like 35 and third parties are doing the rest. In terms of Trying to be where we're going to be in 2024. Really the goal on the revenue per 100weight is To improve that, I mean, our revenue per 100 weight is down a bit.

Speaker 1

We think that the market condition will support Some growth in there. If I look at my peers, those guys are up. Us, we're down a bit because our weight was also up at the same time. Our revenue per shipment is up year over year. We believe that market condition in 2024 for the industry in general in the U.

Speaker 1

S. Will be positive. So we'll be in a position again to improve the quality of our revenue. But again, I mean, if the service is there, Okay. Like my peers, their service is up to par, right?

Speaker 1

It's easy to get The more money, it's easier, not easy, but it's easier to get price increase from customer. It's not the situation at T Force rate, Right. So we are working on improving service and once you improve service, then you're in a way better position to start moving rates up, okay, versus market. I'm convinced that T Force rate today versus My peers, same shipment, same destination, etcetera, etcetera, same way that we have to give a discount to a customer because Our service is not comparable, but we're going to get closer in 'twenty four with everything that we're doing.

Speaker 11

Right. Makes a lot of sense. Thank you for the timeline.

Operator

Pleasure, Tom. Our next question is from Brian Ossenbeck with JPMorgan. Please proceed with your question.

Speaker 5

Hey, Lynn. Good morning. Thanks for taking the questions. Good morning, Brian.

Speaker 1

So just to

Speaker 5

follow-up on that service point, You gave the context of the year over year improvements. Can you talk about how that trended through last year and how How recent those improvements work, it sounds like it might have been more recent events because that probably has implications in terms of how fast you can improve the pricing, How much customers trust the level of service, so maybe a little bit more context around that?

Speaker 1

Yes. No, it's what happened, Brian, is that this is these are improvements that happened during the course of 'twenty three. If you look at the claim, I mean, it's something that we just woke up one morning and say, hey, I mean, our claim ratio has improved so much. This is something that we should talk about and this is why for the first time we're talking about it in our press release, right. But this is something that we start improving about a year and a half ago when we saw that there was really a need, a major need for improving.

Speaker 1

In terms of the line ore, what we are talking about, Okay. This is something that we started about 3, 4 months ago, okay, when we talked to our union contract and all that. We said, guys, In order to improve service, we want to drive more miles on the road for sure that will create some kind of jobs, etcetera, etcetera. So that is something that we really started, let's say, in the fall of 'twenty three, and we'll keep doing that to improve service. In terms of The major rock that I've got in my shoe over there, which is billing, etcetera, etcetera, this is something we've just hired a new folks in Our pricing billing department, I would say like 6 months ago, this guy took it over and that's going to be part of our improvement for 2024.

Speaker 1

There we have seen some improvement, okay, because of all the measures that we put in place, manual measures, okay, to improve the way we build customers, to try We'll eliminate as much as possible mistakes and all that and credits and rebilling and all that. But I mean, in terms of the system, this is 'twenty four where we're going to have to move into a much better tool for our people to be able to build customer in in an efficient way so that there's no more mistakes. I mean, this is you know what, this is something I've never seen in my life, How bad of a system that we have, how many mistakes we make. I mean, I think that For 20, let's say, 22,000 shipments, we will probably issue like 35,000 invoices because we bill, we credit, we rebill. I mean, it's just a nightmare.

Speaker 1

And this is not something new. This has been going on for years years years,

Speaker 5

Got it. So on the other side of USL2, one of the big things going into this year, I think was just getting the terminal level information down to the service center managers and Yes. And whatnot, so I'm thinking you talked about that as much. Yes. And we just can give us a sense in terms of how that's progressing.

Speaker 12

Yes.

Speaker 5

I'm just starting to see that that's going to take a little while to get using

Speaker 1

it. Very good question. I mean, yes, we have Financial information now at the turbo level, okay, in 2024. This is something new, okay. So I'm meeting the guys next week And I'll know more.

Speaker 1

I was in one of our terminal in Alabama 2 weeks ago, talked to the manager there. Yes, We're doing better now and for sure, Brian, that's something I forgot to talk about. But you're absolutely right. I mean, this is also going to help us because now We're providing them the financial information so that they could start making a difference in terms of managing costs better, Okay, managing labor costs better, etcetera, etcetera. That's something new though.

Speaker 1

I mean, this is we're just doing that now. Okay. We'll take some time. Some managers will make it. Maybe some managers will say, you know what, this is not for me.

Speaker 1

And then we'll have to replace some of the managers by but a manager at the T Force terminal in 'twenty four now has got to manage costs, Manage employees and manage the fleet, manage the service, etcetera, etcetera. He's got to be a real manager.

Operator

Our next question is from Konark Gupta with Scotia Capital. Please proceed with your question.

Speaker 6

Thanks, operator. Good morning, Elias.

Operator

Good morning, Gunnar. Good morning, Ali.

Speaker 6

Just wanted to understand on Q1, I know you're saying it's Tracking a little bit soft due to weather in January, etcetera. But are you expecting EPS Flat or up in Q1 versus last year's Q1. And would you say the free cash flow for the full year Growth Toward $10 per share.

Speaker 1

Good morning. Okay. So, Like I said earlier, we don't really want to talk too much about 'twenty four so far. But what I could say is again, I mean, I think our free cash flow for We did $9 a share this year. The forecast, what I could say is that we believe that our free cash flow for 2024 is going to be very good as well, Right.

Speaker 1

We'll give more information when we come up with our Q1. But when you think about that, I mean, dollars 9 a share, I mean, this is quite an accomplishment. We believe that we'll be more precise when we get into Q1 numbers. But I think our free cash flow is going to be wow again in 2024 based on what we could see now. January for sure has been tough.

Speaker 1

In Q1, are we going to do better in Q1 'twenty four than in Q1 'twenty three? I would say yes, Okay. Will that be better by a lot? Probably not, because January has been quite difficult for us. And if you listen to our peers, I mean, everybody is saying the same.

Speaker 1

I mean, we had snow in Nashville. Our terminal was closed for a few days. I mean, this is never seen, never heard that before. So TFI is all about cash, Right. So like we said many, many, many, many times, that helps us do M and A, buyback shares, etcetera, etcetera.

Speaker 1

The focus at TFI has always been about cash. Cash is king. And what I could say is that we'll come up with something more of a guidance at Q1. But if you try to pull a little bit of information from me, I would say that we believe 'twenty four is going to be as good as 'twenty three and maybe even better.

Speaker 6

Okay. No, that's great color, Leland. And then maybe I can follow-up with all that cash that you expect to generate this year. Are you earmarking anything for tuck ins and buybacks Edlain.

Speaker 1

Yes, yes. Tuck in for sure. Bernard, we always do tuck in, Right. We always spend or invest at least $200,000,000 to $300,000,000 a year on tuck ins. So absolutely, I mean, now in terms of buyback, probably not as much as we did last year.

Speaker 1

There again, it depends on what the stock price is, right? So, if you look at our Q4, we bought back, I think, 1,500,000 shares, Okay. Because we look at the reaction after we came out and we saw an opportunity and And we said, you know what, we're going to buy 1,500,000 shares. We did that in Q4. So depending on the reaction of the stock, we're always there.

Speaker 1

Now, with this Daseke deal, what I could say is that, let's say, we closed that in April. I would say that our leverage will be under 2 at the end of June after the closing of the deal. And If nothing major happens, I mean, we'll probably be under 1.5 by the end of the year.

Speaker 6

Okay, that's great. I appreciate the time, Helane. Thanks.

Speaker 1

Pleasure, Cunard.

Operator

Our next question is from Ben Moore with Deutsche Bank. Please proceed with your question.

Speaker 13

Hi, good morning, Elon. Thanks for taking our questions. Can you talk a bit

Speaker 11

more about

Speaker 13

the conditions in which you'll pursue a breaking up with the company? Your December statement didn't include Much details in terms of how you're thinking about doing that. Now obviously, the market responded favorably to it. But can you talk about conditions in which a split happens or doesn't happen and what does the breakup do for the LTL business that it's not getting now?

Speaker 1

Yes. So what we're doing now is really we're studying this project And we believe that makes a lot of sense because if you look at our return on invested capital, right, Although our return on invested capital for our truckload in Q4 was about 10%, right, which is the lowest within TFI. And now that compares favorably with my peers though. I mean, if you look at my peers except for one That is a big intermodal player, okay. Even in Q4 with a 10 point something return on invested capital, Okay.

Speaker 1

I'm probably better than everybody except that peer that do a lot on the rail. We believe that this is makes a lot of sense to be as a standalone, okay? And even more now with Daseke, that's And also that's going to give us some free cash flow over and above what we have within our truckload operation. So it's really the logic of not being a conglomerate, okay, like we've always been. Now You have to understand the history, because we start really on the Canadian side and in Canada, you cannot be a pure play, because If you are a pure play, you are always going to be small.

Speaker 1

So we have grown this business in Canada as not being a pure play. So with package, with LTL, with truckload, blah, blah, blah, And then we start moving into the U. S. We start with truckload first, okay, with TA and CFI. We sold CFI, so now we're More in LTL and in specialty truckload with the Daseke acquisition, but still, okay, Like one of my peers that did the spin off, I would say, what, 2 years ago, okay, it makes sense for us to do that sometimes in 'twenty five.

Speaker 1

So we're getting ready for that as of fall of 'twenty four because we believe that there's a huge discount, Okay. On TFI shares today because it's a mix. It's a mix of truckload. It's a mix of LTL and logistics. We believe LTL and Logistics makes a lot of sense to be together because profitability is there.

Speaker 1

If you're trying to mix LTL With our return invested capital at 25 and logistics return invested capital at 0, that doesn't make any sense. But that's not the situation at TFI. I mean, our OR in our logistics is running 88. Our OR in LTL today, Combined U. S.

Speaker 1

And Canada is about $98,000,000 and we're going to go down to $88,000,000 $85,000,000 over time. So So I think it makes a lot of sense. Our return invested capital, okay, is great. Now U. S.

Speaker 1

LTL is not as good as it used to be because we So that's the thinking, that's the logic between having one company, TFI, that is Truckload LTL and Logistics versus having 2 business units. 1 is truckload, specialty truckload, not van, specialty truckload with an OR that's going to be on average for 5 years like low 80s, okay, with a huge free cash flow and the same on the other side, huge free cash flow and I know are in that neighborhood of low 80s.

Speaker 13

Thanks. And as a follow-up, beyond the 500 to 700 basis points of initial OR improvement for U. S. TL that you've discussed in the past. You've also talked about an additional 500 to 1,000 bps from mix and density improvement.

Speaker 13

How much would you estimate you've achieved from that so far as we enter 2024? And what's the cadence of achieving the balance of that over 2425? And are you still targeting an 80 5 OR in 2025, which means another 300 bps from the 88 from 2024?

Speaker 1

Yes. That's a very good question. So what we're saying is 88 for 24. That is really the goal. We said that this company has to be an 85% and probably less than 85% over time.

Speaker 1

Now, For sure, this is based on normal market condition, which we haven't seen in 'twenty three. We don't know if we'll see that in 24. But let's say that in 'twenty five, we have normal market condition in terms of freight environment. I think that we should be well positioned to be under 88 in 25 in normal market condition. Can we get to 85 over time and convince?

Speaker 1

Will that be in 85 May in 'twenty five. I mean, it's still too far away to say that, but I'm still convinced Guys that this company, there's no reason for us not to be a low 80 OR company over time over a period of 3, 4, 5 years in the normal freight environment.

Speaker 13

Great. Thanks a lot.

Speaker 14

Pleasure.

Operator

Our next question is from Kevin Chiang with CIBC World Markets. Please proceed with your question.

Speaker 9

Hey, Alain. Thanks for taking my question. I know the call has been going long here. Good morning, Joe. Maybe just Good morning.

Speaker 9

Maybe just a clarification question on the 88OR in U. S. LTL. Are you assuming shipments are Similar to, let's say, the exit rate or the seasonally adjusted rate in the back half of 'twenty three, so roughly the 23,000 shipments? Or Or do you assume you can kind of get up to that 24,000, 25,000 shipments or is that needed to get to the 88OR?

Speaker 1

Yes. The average shipment for us in 'twenty three in 'twenty three in 'twenty three, in 'twenty four, Kevin, is about 22,000 to 24,000 shipments, right? So we're not going to do that in Q1, okay, but the average for the year should be in that 23%, 24% range.

Speaker 9

Okay. That's super helpful. And I know this isn't nitpicky, but just on the TL acquisition, you talked about $0.02 of earnings accretion in 'twenty five. It does sound like there's a lot of low hanging fruit. If I just do quick math, If you drop that OR by like 5 points, it seems like it could be significantly higher than $0.50 I'm just wondering, is it conservatism?

Speaker 9

Is it Any noise around purchase price accounting, just close the deal still, just macro, just wondering maybe the difference between the margin improvement you've talked

Speaker 1

Yes. We're always conservative, Kevin, when we talk about $0.50 $0.25 that is to me that's a minimum. When I look at All these different operation, when I talk to all this leadership, those guys that run the shoulder in the 9 different business unit, I'm very confident that these guys over not 3 years, okay, it's not a complex deal like UPS Freight. UPS Freight was very Daseke is not the same at all. I mean Daseke, we have great operating team in all the business unit.

Speaker 1

And these guys have done very well in 'twenty three in a difficult market like us. They've done well. Now when you look at the global of DESE, you say, well, they're not doing that well. Well, Problem is that they have huge costs at an office for consultant, accounting. I mean, they spent a lot of money during the course of 'twenty three and probably prior for people that came in to help them at an office, right?

Speaker 1

As an example, they've implemented Oracle Finance, same as us. Okay. Us, we're doing it ourselves. Over there, they've done it with a consultant that cost I don't know if I remember $3,000,000 $4,000,000 I mean, us at TFI, we've done it ourselves. I mean, we didn't invest in the consultant to help us do that.

Speaker 1

I mean, we've done it ourselves, right? So that's why I'm saying those guys are the operating guys are really, really sharp. So if market conditions turn sometimes in 'twenty four late or maybe into 'twenty five, there's lots construction that needs to be done in Canada and in the U. S, I mean the infrastructure, the road, the schools, the housing, etcetera, etcetera. So That's why I believe that our timing is fantastic for Daseke's acquisition, the same as our timing For selling CFI was great.

Speaker 1

I mean, we were in a good position when we sold CFI. Fantastic. I think we're a fantastic position with this acquisition of Daseke, step 1. And then it positions us well to do what we want to do in 'twenty five with probably other parties and to do a great a specialty truckload public company in the U. S.

Speaker 1

That's got size, okay, with the TFI asset and maybe other assets.

Speaker 9

That makes a ton of sense. Great color and

Speaker 3

best of luck in 'twenty four.

Speaker 1

Thank you.

Operator

Our next question is from Cameron Doerksen with National Bank Financial. Please proceed with your question.

Speaker 12

Yes, thanks. Good morning. Maybe just two quick ones from me. I guess maybe first on the logistics, you alluded to this a little bit, The JHT acquisition looks like it was a real positive in Q4. I'm just wondering about the sustainability of the logistics margins in 2024 and

Speaker 11

Is there any, I guess, seasonality in

Speaker 12

there that either helped Q4 or Maybe the question is really more about what we should expect as far as the sustainability of margins and logistics.

Speaker 1

Yes. You know what, Cameron, I think that our logistics Sustainability is under 90 OR. We've always played in the 90, 91, 92 OR so far. I mean, you saw us at 88 something in Q4. I think you'll see us below 94, 2024.

Speaker 1

Now, GHT for sure 2024 is going to be a little bit of a slowest year for them, because the build rates, Okay. Of a packard and Freightliner, Daimler, Chrysler, not Daimler, Chrysler, but Daimler. Okay. We'll be a little bit less in 24, but 25, 26, I mean, GHT is just going to be booming big time. So to answer your question, I think that The new normal for our logistic is going to be sub-nine EOR, okay?

Speaker 1

And I would say that 25, 26, Probably will get even better with existing business that we have today.

Speaker 12

Okay, perfect. And then just secondly on the conventional the Canadian conventional truckload, obviously some challenges there on the OR. How much of that was kind of driven by M and A that you did during the year where you're still working through the improvements with those tuck in acquisitions?

Operator

No,

Speaker 1

Cameron, this is a Canadian problem that we have, right? So we are losing volume, Okay. Because the market is soft and we have unfair competition with the Driver Inc. Situation in Canada. I mean, this is a disaster that we have in Canada and nobody is doing anything about it, right?

Speaker 1

So I don't know if you guys are familiar with the Driver Inc. Thing there, Okay. But Driver Inc. Is it's unfair competition to all the regular company, trucking company in Canada. So we are suffering.

Speaker 1

We're losing volume to those guys because it's unfair competition. The Driver Inc, okay,

Speaker 12

Right, right. Okay. No, that's a good answer.

Speaker 1

That's the problem we have in Canada. Cameron, that's the problem we have in Canada. Now That will get fixed if volume comes back to a certain degree, but it will be a long term problem for us, okay, As long as nobody in Ottawa, okay, or in Quebec or Toronto does anything about it.

Speaker 12

Right. Okay. No, that explains it. Thanks very much.

Speaker 10

Pleasure to comment.

Operator

Thank you. Our next question is from Benoit Poirier with Desjardins. Please proceed with your question.

Speaker 14

Hi. Good morning, Alain. Good morning, Benoit. Yes. And just in terms of capital deployment, you provide good color about the buyback M and A we might see in 2024.

Speaker 14

I would be curious to hear you about CapEx, what kind of numbers we should expect? And also in terms of M and A your appetite to get exposure to claims down the road through M and A given your focus on cash and asset light

Speaker 1

Business. Yes. So CapEx excluding Daseke should be the same 24 in 'twenty three. So if you look at our CapEx, net CapEx, we're talking about what something in the neighborhood $300,000,000 Okay? So excluding DESC We're talking about the same kind of number, right?

Speaker 1

So I mean our free cash flow is going to be Great again, I think in 'twenty four. So like I said earlier, Benoit, I don't think that we're going to do a lot of buyback Unless there's an opportunity on the stock price. So really the focus is going to be do the Daseke deal fine, Bring the leverage down back to something like a 1.5 by the end of the year, okay, and do maybe some small nice tuck ins here and there, Spend maybe $200,000,000 to $300,000,000 like we always do. And if there's a transaction that makes sense for us late in the year or into early 'twenty five in terms of either LTL or logistics, Well, for sure we'll look at it. Hello?

Operator

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Elaine Bedard for any closing comments.

Speaker 1

All right. I want to thank everyone for joining us this morning. We're excited about the year ahead and we're glad you were able to join us today. If you have any follow-up questions, as always, please don't hesitate to reach out. Enjoy the weekend, everyone, and thank you again.

Speaker 2

Bye.

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Key Takeaways

  • TFI posted a Q4 operating income of $198 million (11.8% margin) and adjusted EPS of $1.71, while generating $303 million in operating cash flow and over $1 billion for the full year.
  • The company deployed roughly $2 billion in 2023 on acquisitions and share repurchases, raised its quarterly dividend by 14% in Q4 and ended the year with a funded debt/EBITDA ratio of 1.49x.
  • Logistics delivered standout results with 24% revenue growth and a 60% rise in operating income to $55 million, while other segments maintained profitability despite weak demand.
  • TFI aims to improve its U.S. LTL operating ratio to 88% in 2024 by cutting costs, boosting service (claims ratio down to 0.5%) and stabilizing volumes around 23,000–24,000 shipments per day.
  • The planned acquisition of Daseke (expected to close in Q2 ’24) is projected to be EPS-neutral in ’24 and accretive in ’25, and management is exploring a future spin-off of specialty truckload to narrow the conglomerate discount.
AI Generated. May Contain Errors.
Earnings Conference Call
TFI International Q4 2023
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