TFI International Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 26, 2024

There are 13 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's Second Quarter 20 24 Results Conference Call. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session.

Operator

Callers will be limited to 1 question and one follow-up. Again, that's one question and one follow-up so that we can get to as many callers as possible. Further instructions for entering the queue will be provided at that time. Please be advised that the conference call will contain statements that are forward looking in nature 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 conference call is being recorded on Friday, July 26, 2024.

Operator

I will now turn the conference call over to Alain Bedard, Chairman, President and Chief Executive Officer of TFI International. Please go ahead, sir.

Speaker 1

Well, thank you, operator, and welcome everyone to our call today. Our results released yesterday after the close were again very solid with a year over year increase in both revenue and operating income in all of our segments outperforming is still very lackluster freight environment. Our results reflect the hard work every day of our skilled and dedicated team members as well as strong management and our many other self help initiatives that will continue to benefit us going forward. Our overreaching focus as a company is on the long held operating principle that got us here. We're focused on the details, including quality service that drives volumes.

Speaker 1

We're focused on freight quality, maximizing weight and revenue per shipment and always striving for cost management through greater efficiencies. I believe that especially during weaker freight cycles, it's this adherence to the fundamentals that helps us perform. All the while, we maintain a solid financial position that allows us to seek highly strategic M and A opportunities to intelligently invest in the business and to return excess capital to shareholders whenever possible. During the Q2 of 2024, our revenue before fuel surcharge was up 27% to 1,960,000,000 dollars We generated operating income of $208,000,000 up for $192,000,000 in the Q2 of 2023 with an operating margin of 10.6 percent relative to 12.4 percent. We also produced adjusted net income of $146,000,000 up from 1 $0.39 a year earlier, along with adjusted EPS of $1.71 up from $1.59 the prior year.

Speaker 1

Cash flow generation, as you've heard me say in the past, is always a focal point of ours. And during the Q2, we drove nearly $250,000,000 of net cash from operating activities, well above the year earlier 200,000,000 dollars We also generated free cash flow of $151,000,000 which was up from 138,000,000 Before moving on to consolidated results, I want to summarize how the Daseke acquisition completed April 1 affected our reporting. Daseke added $329,000,000 to 2nd quarter revenue before fuel surcharge and over $23,000,000 to our operating income both reflected in our truckload business segment. In addition, our consolidated corporate level results reflect a non recurring restructuring charge of $20,000,000 related to the Daseke acquisition, which I'll touch on in a moment and which we've adjusted for the consolidated results I just reviewed. Specifically adjusted net income and adjusted EPS.

Speaker 1

Let's talk overall strategy. Our 2nd quarter results and in particular our robust cash flow generation even during the slower stretch of North American freight reflects a number of positive factors. In addition to the hard work of our team and our laser focus on getting the fundamentals of the our team and our laser focus on getting the fundamentals of the business right, our financial results should continue to benefit from, as I referred to last quarter, the very tangible opportunity to drive even stronger LTL results. We will continue to extract costs while at the same time driving top line expansion through service quality. On both counts, we still have a lot of work to do.

Speaker 1

Similarly, our recently completed Daseke acquisition brings opportunities on which we've already started executing to reduce costs and improve performance. Now turning to our business segment, we've now aggregated P and C into our LTL. Over time, P and C has become a smaller portion of our overall business, especially following the Daseke acquisition. So we will now report as 3 segments, and we believe that this move will help simplify and add transparency to investor understanding. All the operational details are still in our quarterly report and we can discuss anything you like during our Q and A.

Speaker 1

So with that, let's start with LTL, which was 40% of segment revenue before fuel surcharge during the quarter. We drew our revenue before fuel surcharge 1% year over year, while our operating income was up 2%, reflecting a slight increase in our operating margin. So within LTL, starting with U. S. Based operation, our revenue before fuel surcharge was $548,000,000 essentially flat relative to the prior year period, while our operating income climbed to $51,000,000 up from $47,000,000 Our U.

Speaker 1

S. LTL tonnage was up 8% and our revenue per shipment was up 7%, reflecting our focus on quality of freight and quality of revenue. Our operating ratio for U. S. LTL was 90.8, 70 basis points better than last year and our return on invested capital was 15.4.

Speaker 1

On the Canadian side of LTL, we generated revenue before fuel surcharge of $144,000,000 up 12% the past year with operating income of 35,000,000 dollars up from $34,000,000 Our numbers of shipment was up 14%, although weight per shipment and revenue per shipment declined 4.5% and 1 0.2%, respectively. We had NOA of 75.6% and our return on invested capital for Canadian TL was 19.1 dollars Lastly, with LDL, our P and C operation drove $109,000,000 of revenue before fuel surcharge compared to $116,000,000 the prior year period with operating income of $24,000,000 relative to $27,000,000 last year. We have $77,900,000 return on invested capital P and C was a very strong 24.2%. Turning to truckload, this business segment was 37% of segment revenue before fuel surcharge. Daseke integration is off to a fast start with a quick reduction in costs resulting to the one time charge during the quarter.

Speaker 1

We produced structural revenue before fuel surcharge of 738,000,000 dollars as compared to $411,000,000 the prior year benefiting from the Daseke acquisition. Our truckload operating income of $83,000,000 was up from $66,000,000 Also worth noting, our truckload ORR came in at an impressive 88.7 given where we are in the freight circ cycle. An indication we're executing well and that our unique specialized end market are proving more resilient. Digging deeper into truckload within specialized operation, we produced revenue before fuel surcharge of $665,000,000 up from $335,000,000 largely due to the Daseke acquisition with operating income of $75,000,000 up from $54,000,000 in the prior year period. We saw increased productivity with revenue per truck per week, up 2% before fuel surcharge, while growing our truck count more than 70% with the acquisition.

Speaker 1

In addition, our specialized truckload OR was 88.7%, percent as I mentioned, and our return on invested capital came in at 7.3%, which I'll remind you includes only 1 quarter of contribution from Daseke and therefore should strengthen over the coming year. Turning to the Canadian based conventional truckload, we produced revenue before fuel surcharge $76,000,000 down just slightly from the past year, while our operating income of $8,000,000 compares to $12,000,000 in the year ago quarter. Our Canadian noir was $89,300,000 while our return on invested capital was only 8.9 And wrapping up our business segment discussion logistics was 22% of segment revenue before fuel surcharge and is performing very well. Our revenue before fuel surcharge was up 22% in the past year and operating income was up 54%. In the Q2, our logistics operating margin was 11.4%, which has improved from 9.1% a year earlier and our return on invested capital was a very solid 20.5.

Speaker 1

So let's move on to our liquidity and balance sheet. So during the quarter during the Q2, we generated free cash flow of $151,000,000 that's up from $138,000,000 a year earlier and we end up June with a funded debt to EBITDA ratio of 2.15. This strong financial position is a key start of our approach to the business that allows us to strategically invest regardless of the economic cycle, while also returning capital to shareholders whenever possible. Speaking of investment and returning capital during the Q2, in addition to Daseke, we made 4 other smaller acquisition and another small acquisition subsequent to the quarter. Also in June, our Board declared a quarterly dividend that is 14% higher than a year earlier at $0.40 per share that was paid on July 15.

Speaker 1

Before opening the Q and A, I'll provide a quick review of our full year guidance, which is unchanged from what we provided on our last call. Specifically, we look for EPS to be in the range of $6.75 to $7 We expect full year free cash flow to be in the range of 8.25 to $900,000,000 with net CapEx of $275,000,000 to $300,000,000 In addition, we still intend to pay down $500,000,000 to $600,000,000 of debt this year, and we repaid a little over $100,000,000 in Q2. With that, operator, I'd be happy to take questions. If you could please open the lines.

Operator

Thank you, Mr. Bedard. Ladies and gentlemen, as stated, we do ask that you please limit yourself to one question and one follow-up so that we can get to as many callers as possible. And your first question will be from Ravi Shanker at Morgan Stanley. Please go ahead.

Speaker 2

Thank you. Good morning, Alain. So we heard from hello. We've heard from some of your U. S.

Speaker 2

Trucking peers that they're seeing better seasonality in 2Q, some signs of project business and some tightening in the market. We see that in the data as well. Would you underwrite that view? And are you getting any more optimistic the cycle in the back half? Or do you think it's still too early?

Speaker 1

It's too early, Ravi. I mean, what we're seeing is that it's still more of the same. It's still a very, very difficult market right now. If we look at the U. S, our specialty truckload, I mean, we're still at pressure on race per mile.

Speaker 1

Although the guys are doing a good job of having the trucks on the road and moving freight around. But I would say that 2024 is going to be a difficult year. This is why we have not changed our guidance. We still think that the guidance that we provide in Q1 is attainable for the year. But when I look at the global North American market, U.

Speaker 1

S. And Canada, I think that Q3 and Q4 will still going to be difficult quarters. '25 maybe a different story, hopefully. But what we're seeing right now is our focus is to do more with less, is to be more efficient. If you look at what we've done so far with DESCY on the truckload side, I mean, we're attacking costs like there's no tomorrow.

Speaker 1

And that's how we're able to bring an 88 OR combined with our own operating truckload business that was last year an 85 something, 85.7 I think. So now, you know what Ravi, I think let's be conservative, okay? I hope I'm wrong, right? I hope that things will get better, but I don't have this sense right now.

Speaker 2

Understood. And maybe as a follow-up on the LTL side, how are you seeing the environment right now? Obviously, there's some idiosyncratic kind of factors there on the capacity side as well. Do you think the market is tightening enough to support pricing to the cycle? Or are you concerned about too much capacity there, maybe kind of losing the streams a little bit?

Speaker 1

No, I think that we will win the war us on LTL being more efficient is by reducing our costs. Our costs are way too high. Our costs are way too high. Our fleet cost is too high. And for us, our focus at T Force rate is really, really to be more lean and mean, to be more efficient.

Speaker 1

For sure, we are implementing new technology within this company in terms of Lino, in terms of billing, Masterfly and all that. But still, if I look at my IT costs as a percent of revenue is way too high and it's also true of Daseke. I mean, if you look at our IT costs at Daseke is twice as much as the TFI truckload IT costs as a percent of revenue. So for us really, Ravi, the name of the game to at our U. S.

Speaker 1

LTL to break that 9 OR once and for all is all about cost. Hopefully, the market stays okay. I mean, the market is not that strong. I mean, mean, if you look at what's going on right now, I mean, our shipping count is steady, but it's not growing. I mean, what we are able to do is to grow the weight and grow the revenue per shipment.

Speaker 1

That's we were able to do that so far. But we still don't have our costs down in terms of reducing the miles for our P and D, improving our density. We're still not there. We still have a lot of work to do.

Speaker 2

Understood. Thank you, Alan.

Speaker 1

Thank you, Ravi.

Operator

And next question will be from Ken Hoexter at Bank of America. Please go ahead.

Speaker 3

Hey, great. Good morning, Elaine.

Speaker 1

Good morning, Ken. I think

Speaker 3

just touching on the Ravi's kind of topic on the backdrop, maybe a little bit more on the LTL side. You mentioned it's all about cost, but as you get peers opening more facilities, you had a peer this morning talk about more lightweight volumes that are kind of disrupting their network. It looked like your revenue per shipment ex fuel decelerator was down sequentially. Maybe talk about the rate environment on the LTL side.

Speaker 1

Yes, very good question, Ken. And for sure, I mean, we're seeing a lot of RFPs. We're seeing a lot of pressure because the market, like I said earlier, is still soft. I mean, so it's a fact. I mean, we've lost a major player a year ago in the industry, but it seems like we're back to square 1 in terms of volume.

Speaker 1

So this is why my comment is so important that our focus is to keep what we've got in terms of volume, try to improve it, try to grow it slowly. But for us, the name of the game is we need we're too fat. I mean, we got too much cost. Okay. If you compare our U.

Speaker 1

S. Cost versus the way we do business in Canada, I mean, we are like way too fat. So we have to attack the costs. Our IT costs are too high. Our fleet management cost, maintenance cost is too high, etcetera, etcetera.

Speaker 1

So this is us. I mean, we have to do the job. Now the market is the market going to help us? I don't think so, right? Like, you could hear from some of our peers.

Speaker 1

If you look at the best player in the U. S, I mean, those guys are doing really well. Why? Because they're better way better than us on managing costs, right? So this is what we're trying to do.

Speaker 1

And that's how we're going to be able to break that glass ceiling that we've been stuck with 90 something OR. We want to go under this 90 OR, but the way we're going to win in 2024 and in 2025 is by being lean and mean, reducing our costs, doing a better job, okay, all over the place on our costs. Now what's also helping us, like I said many times, Ken, is finally in 2024, we have financial information by terminal. So for sure, this is going to be huge help, okay. But if you have a manager that sits on his hand, well, that's not going to help us.

Speaker 1

So these guys have to go and they have to be replaced by a manager that wants to do things and wants to reduce costs and be more efficient and manage not just delivery of freight, but manage all the cost, the employee cost, the relationship with customers, etcetera, etcetera. So we have a big job to do. Don't forget, we bought T Force 3 years ago. Okay. We made a lot of improvement there, but we're still running at just a 90 OR operation, right, 90 point something, 90.8 in Q2, right.

Speaker 1

So we have a long way to go to get to the 85 and for us, I don't see the market 24, 25 helping us too much. I think this is all us. We have to do the job.

Speaker 3

Yes. Let me ask a quick follow-up on logistics, right, which usually, I don't know, would you call that, I mean, solid results there? Would that be an early indication of some sort of turn? Or would you look at it and say, wow, that's just benefiting from the weak market? Or is it even last mile, not even

Speaker 2

an indication of the logistics side?

Speaker 1

Ken, our logistics results are second to none. I mean, when you look at that, we're very proud of what the guys are doing over there. I mean, and they will continue to improve. They will continue to improve and we made a fantastic acquisition a year ago when we bought GHT. I think we have more to come in that sector, probably, hopefully.

Speaker 1

And for sure, we're in business to make money. We don't like returns of 2%, 3%, 4%, 5%, 6%. So this is why if you look at our OR for the first time, we broke the 90%. Okay? We've never been under 90 OR in our logistics for the first time now.

Speaker 1

We are under 90, as a matter of fact, even under the 89. So we feel good because like I said on M and A side, on the U. S. Side, we are looking at 2 sectors really only right now. It's either an LTL play or a logistics play for 2025.

Speaker 1

I mean, because I mean, we've been busy in 2024 with DESCY. We're also busy, okay, with small tuck ins mostly in Canada, okay, because it's easy for us to do small tuck ins in Canada because we have a bench strength that is second to none. So but in 2025, we're getting ready. This is why if you look at my leverage right now, I'm at 2.15, something like that. Our plan is to be by reimbursing debt, like I mentioned on the call, we're going to be at 175 probably by year end, right?

Speaker 1

TFI, it's a cash flow machine, a free cash flow machine.

Speaker 3

Yes. No, I was just wondering if it was just an indication of the market. Now I get you're doing a great job. Just if it's telling you No,

Speaker 1

I don't think it's the market. I don't think Hey, Ken, I don't think it's the market. I don't think it's the market. I think it's our guys that are doing a fantastic job. But we'll see.

Speaker 1

I mean, when the and our PAs comes up, I mean, we'll have better understanding.

Speaker 3

Wonderful. Thanks a lot.

Speaker 2

Appreciate the thoughts and the take.

Speaker 1

Thank you, Ken.

Operator

Thank you. Next question will be from Walter Spracklin at RBC Capital Markets. Please go ahead.

Speaker 4

Yes. Thanks very much, operator. Alan, good morning. Good morning, Walter. If you could touch a little bit on your trends toward your target of U.

Speaker 4

S. LTL-eighty eight, you referenced it in your earlier in the call. I'm just noticing you're at about a 90 2 year to date in your U. S. LTL.

Speaker 4

That would be 85 ish for the rest of the year to hit the 88. Is that still an achievable target? And can you talk about what will

Speaker 2

cause you to do that step down?

Speaker 1

No, no, no, Walter. I mean, for sure for the year 'eighty eight as I see it right now, it's impossible. What we're trying to do between now and the end of the year is to break the 90, okay, in Q2 and Q4, right? When we look at our plan in the fall of 2023, when I listen to our guys, our team, we thought that we would grow our shipment count at the same time as reduced costs. So what we're seeing is we're not growing our shipment counts.

Speaker 1

I mean, our shipment count is steady Eddie, about the same, okay? And we anticipate that probably by year end, I mean we're still maybe going to grow the shipment count a little bit, but not much. So really the name of the game to break the 9 EOR is going to be all costs for us, reduction of our costs in Q3 and in Q4 to finally break this 90, which has been a difficult task for us to do. And going into 2025 though, if market conditions stays about the same as 2024, I think that we'll be able to be on a yearly basis, okay, under the 90. But if you look at what we have done so far after 6 months, like you said, we're 92.

Speaker 1

So I believe that with our cost control and implementation of better productivity, we'll be probably in same market condition in 2025, we'll be able to show after 6 months of 2025 under 90, okay, if we keep working at attacking our costs.

Speaker 4

Okay. That's great. And just on the follow-up to the macro, just a few small questions here. You mentioned you don't you're not calling for an upturn. I'm curious if you would at least do you see it as a bottoming?

Speaker 4

I know a few of your peers have said they believe at least it's not getting worse and whether an upturn comes or not may be delayed, but at least it's bottoming. And then are you seeing any positive or negative impact from shipper diversions that are avoiding the Canadian rail strike? I know CN and CP have called out some diversions away from their lanes in worrying about a strike. Is that impacting you at all, either positive or negative?

Speaker 1

You know what, Walter, Wendy, you started talking about a strike in Canada 2 months ago. Yes, we saw a little bit of that. But you know what, us, we run a lot of stuff on the rail, right? So it's a positive on one side, but it's also a negative on the other side because if you look at intermodal LTL, the minute these guys start to talk about strike, I mean, they start moving our LTL that's today run on the rail, they move it on the road. Yes.

Speaker 1

So it's for us, it's not that good to have a strike with the rail guys. I mean, hopefully, these guys could settle and get this thing behind us. Now in terms of have we hit the bottom? That's probably right. I mean, can we see this thing getting worse?

Speaker 1

I don't think so. But I don't see that major improvement in 2024. I think it's going to be more the same, okay, for the rest of the year. And hopefully, okay, things will start improving. Now, don't forget, there's also U.

Speaker 1

S. Election in November, right? So depending on who takes over, if it's it could also change things in 2025. So we don't know that. But as I mean, we are really focused on what we can do ourselves, which is we can't control the market.

Speaker 1

The market is the market, so we can't control the market. But what we can control is our cost and we're trying to be way better, okay? If you look at our U. S. LTL, we have a lot of work to do there.

Speaker 1

If you look at our Canadian LTL, we're doing quite well. If you look at our P and C, I mean, yes, we had a little bit of a soft patch in Q1, but we are improving in Q2 and we'll keep improving in Q3 and Q4 and into 2025. If you look at our specialty truckload, I'm really proud of what Steve Brookshaw has done with his team with Daseke's team there. I mean, like I said on Q1's call, the Daseke thing there, I mean, we're going to run Daseke sub-nine percent OR within a year. And I'm still very confident about that.

Speaker 1

I mean, the guys are doing a good job. And like I said, just a simple IT cost, I mean, we're going to have to cut the IT cost of DASK in half to be comparable to our cost to run the business, right? So we got a lot of opportunities and for sure it takes a little bit of time, but I feel really good about what's going on right now. When I look at my peers in the truckload sector in the U. S, I mean, I think everybody is suffering big time.

Speaker 1

Is that going to change for the rest of the year? I don't think so. Is that going to be better in 2025? I think so. Why?

Speaker 1

Because it's been going on for more than 2 years right now. So this thing has to break at one point.

Speaker 4

Okay. I appreciate the color, Alan, as always. Thank you.

Speaker 1

Thank you, Walter.

Operator

The next question will be from Tom Wadewitz at UBS. Please go ahead.

Speaker 5

Yes. Good morning, Elaine.

Speaker 1

Good morning, Tom. I wanted to ask you

Speaker 5

a little more on U. S. LTL. What's the mandate for salespeople in U. S.

Speaker 5

LTL right now? I mean, you've talked about kind of bad mix of shipments, too much distance between pickups.

Speaker 4

You've talked

Speaker 5

about maybe like heavier weight per shipment. When I look at the numbers, it looked like you did see some sequential growth in shipments, but some decline in revenue per shipment. So I guess I'm just wondering, yes, is it focused on better mix? Is it, hey, we'll give up a little price to get more shipments? Or what's the focus you got for the salespeople in U.

Speaker 5

S. LTL right now?

Speaker 1

Yes. So the focus is number 1 is guys, we have to move the weight per shipment up because we're paid by the weight, right? So when we bought UPS rate, these guys were hauling average weight 1075. So now we're just a little bit above 1200. But if you look at my peers, the average is probably 1500.

Speaker 1

So rule number 1 guys is that we have to slowly get more into the industrial freight, okay, versus the retail freight. Okay, fine. So that's let's see target number 1. Target number 2 for these guys is, you know what guys, to pick up a shipment, okay, let's try to pick up more shipment per stop versus what we're doing now. So when you have a discussion with a customer, let's talk about getting more shipment from this guy when we go there and pick up freight.

Speaker 1

Okay. Target number 3 is us, we have what we call within T Force rate, a GFP, ground freight pricing. We are the only one that has a partnership with our friend UPS. And then when we have a small shipment, small weight, okay, instead of trying to haul that freight or say we don't want to haul that freight within T Force, right? Mr.

Speaker 1

Customer, we have a solution for you, right? This is GFP. Now if you look at my GFP, okay, it's been a year that we went through a lot of issues with GFP because there was some customers that were cheating the system at UPS. These guys got cut off. We had to cut them off, blah, blah, blah.

Speaker 1

So our revenue at GFP is down big time. But now all these issues has been resolved between us and our partner. And now we're ready to go and start growing that. So 3rd mandate for our sales guy, wake up guys, smell the coffee, it's early in the morning, let's sell GFP because we are the only one that can offer to a shipper, okay, a solution that is way more efficient for them and for us and for UPS. So let's try to grow that.

Speaker 1

And then last is, let's focus on customers that are close by our terminal. Let's not try to get a shipment, okay, outbound from a guy that's 85 miles away from our terminal. Let's try to grow business around the terminal as much as possible so that we reduce our P and D miles. So far, okay, we've done a little bit of that, but where we are doing a much better job is on our line haul, okay. So our line haul now is less on rail, more road, okay, and we have a better service for sure, right.

Speaker 1

And we'll keep growing that so that our sales team when they talk to a customer, service is less and less of an issue. So if you compare that to 3 years ago versus today, our service is much improved and that is what we have to keep doing, right. So that's the mandate for our sales team.

Speaker 5

Okay. Yes, that's very helpful. Just one quick follow-up. I think people are trying to get their arms around what's happening with the pricing dynamic in U. S.

Speaker 5

LTL, right? And I think there's the underlying assumption that there's discipline, but it just seems like you wonder because the market's a little soft. And do you think that there is some pressure developing on price in U. S. LTL?

Speaker 5

Or do you think it's just like, hey, this is normal and freight's a little bit soft and there's still good discipline in the market?

Speaker 1

You know what, Tom, that's a very, very good question because for sure, when we look at guys adding doors, adding capacity, then we say, oh, that doesn't look too good. But we can't control that, right? We can control what some of our peers are doing. So this is why when I talk to my guys, guys, we have to be lean. We have to be on a diet, okay?

Speaker 1

We have to reduce our costs because if something happens to the quality of revenue in this market, although it's never happened last if you look at the last 10 years, I mean this industry, the U. S. LTL has got price increases etcetera, etcetera. But there could be some concern where a few players are adding so much capacity that maybe if the market is not growing, okay, there could be pressure on rates. So how do you win with that kind of environment?

Speaker 1

Well, we have to become in the U. S. Like we are in Canada, because in Canada, we have a lot of competition with some guys that don't like to make money, okay, like Curator, owned by Canada Post, the focus there is not to make money. So we have those guys here. We have other guys in Canada that trucking is a sideline for them.

Speaker 1

So they're not really focused about making money in the trucking segment. So we have that kind of competition in Canada and we are successful. If ever this happens in the U. S, I think it will be short term, okay. But it still could be happening.

Speaker 1

And that's why when I'm talking to Bob McGonigal and Keith, I said, guys, let's go on a diet. We have to reduce costs. That's the only way that we're going to break this 90, okay. Hopefully, the market will help us. But if it doesn't, I mean, we have to be really better.

Speaker 1

So our IT costs at T Force rate are way too high. But don't forget, I mean, this is until a year ago, we were stuck with the TSA moving away from UPS. So but that's behind us now, okay? But we have old tools, old software so that we are replacing. Okay, I get that.

Speaker 1

But this got to end at one point so that we could start reducing our costs. To manage the freight, okay, we have to be a single digit as a percent of revenue. Right now, we're not we are single digit in Canada. We were not in the U. S.

Speaker 1

So we have too many staff, too many people in the offices. And that's got to be reduced with better tools, better technology and that's where we're going. Now, if this market gets softer, if there's some pricing issues because some players are adding too much capacity, You will just have to adjust.

Speaker 5

So you're not necessarily seeing it, but you're concerned it could happen?

Speaker 1

It may happen. I mean, but at the end of the day, we don't control what's going on in the market, right? So this is why me what I'm saying to my guys, guys, what I'm seeing, okay, when I see adding doors, adding doors, I see huge investment, okay, and the market is not growing. So guys, hey, let's speed up the diet.

Speaker 5

Yes. Okay. That all makes sense. Thank you for the time,

Speaker 1

Elaine. Thank you, Tom.

Operator

And next question will be from Brian Ossenbeck at JPMorgan. Please go ahead.

Speaker 6

Hey, good morning, Elaine. Good morning, Brian. I wanted to ask another T Force Freight question, but maybe more on the footprint. I think you said that you were looking at potentially M and A in LTL for next year. I don't know if that would be for the U.

Speaker 6

S. And if you can expand on that because you still have a pretty big real estate footprint. There's still some more terminals out there from YRC that could be sold. So maybe you can elaborate a little bit more on that. Bigger picture, what you think the network could look like in a couple of years' time?

Speaker 6

And what are some of the bigger changes we should be focused on there potentially, whether it's divestitures or potentially some M and A?

Speaker 1

Yes. So you know what, Brian, I think that TFI in Canada, we're second to none in LTL. I mean, and we cannot be the number one guy in the U. S. I don't think it's possible.

Speaker 1

But I don't want to be the number 6 or number 7 or number 8 in terms of volume. So for sure at one point, okay, we have to take action on the U. S. LTL market because I still believe even with what I just said to Tom about this little bit of a concern I have with this capacity maybe, but I still think that the U. S.

Speaker 1

LTL is the best place to be, okay. So this is why and I said to Tom, this may be short term, maybe it's just going to be a year, 2 years, but I think long term, okay, we have to be a larger player in the U. S. LTL market. So this is why once we close 24, once our leverage is down to, let's say, 175, when we reduce our debt by $500,000,000 $600,000,000 like it's the plan, I think that by year end of 'twenty five, I mean, we're well positioned to do more, okay, into the U.

Speaker 1

S. LTL hopefully. Now at the same time also, we've said logistics in the U. S, we are doing really, really well. And we have other opportunities to keep building on that base.

Speaker 1

So this is why the 2 sectors, okay, that we're going to be really focused with something that could be interesting for our shoulders is those 2 sectors. On the truckload side, I mean, 2025 is the year where we're going to be digesting all of the Daseke operation in terms of reducing IT, shedding admin costs, etcetera, etcetera. So I don't see anything upsize for us in 2025 on the truckload side. But also the idea and I'm going back to what we said when we bought Daseke is that down the road when we have a certain size, it makes sense to have 2 organization, right? Not today because the size our size is too small, I think.

Speaker 1

So we need to beef up a little bit in 25, 26 because at the end of the day, we want TFI to be more of a pure play down the road, okay, being let's say an LTL Logistics company on one side and on another side, the truckload sector, which is mostly specialty truckload. I would say that our truckload is what 85% specialty truckload, which is way more resilient than the van world. And you could see that when you look at my peers result, great companies are coming out with results right now that are difficult, right?

Speaker 6

Just to follow-up real quickly then in terms of the T Force freight footprint, I thought you're still trying to maybe consolidate or rationalize some of those terminals. Maybe you're through that already, but it sounds like you actually want to get bigger over time. So is that just more different markets that you'd like to be in, different lanes you want to fill out? How should we think about that when at least the current book sounds like, you still want to shrink that first perhaps or maybe I'm misreading that?

Speaker 1

Yes. Brian, for sure. I mean, right now, we're doing a deal with 1 of our peers with 1 terminal. So we're selling 1 terminal to 1 of our peers. Why is that?

Speaker 1

Because it makes sense for us. It's good for them. Okay. We're selling 1 terminal in California. South California right now to a guy that's going to demolish the terminal, right.

Speaker 1

So we have about 35% overcapacity in our doors today at T Force rate. So for sure, it's way too much, right? So we are reducing, reducing, reducing and cashing. So I believe that our real estate will generate probably between $25,000,000 to $50,000,000 of cash between now and the end of the year. So that's going to be used to fund our small M and A that we're doing in Canada and a little bit in U.

Speaker 1

S. That will also help us reduce our debt, right? So going back to your point, no, we're not adding capacity to our network. As a matter of fact, we are reducing capacity because we know that if we are successful in buying another LTL company, probably these guys also will have overcapacity. Maybe, maybe not, depends on who it's going to be.

Speaker 1

So this is why wait, okay. So we're taking action now. So as a matter of fact, we bought 1 terminal, okay. Well, we bought 2 from the YRC thing there. In Sacramento, we used to have 2 terminals.

Speaker 1

Now we move into 1 and those two terminals are for sale. 1 is being sold right now. In Lexington, Kentucky, we move into the YRC terminal and one of the sales that may happen before the year end is our old T Force rate Lexington terminal is being sold right now, right. So we are taking action to be more close to our capacity in terms of real estate because we believe that if we are able to do what we want to do, add some LTL revenue into an M and A acquisition, I mean, we need to be more leaner in terms of our capacity.

Speaker 6

Okay. Thanks for the clarification there. Appreciate

Speaker 4

it. Thank you.

Operator

Next question will be from Jason Seidl at TD Cowen. Please go ahead.

Speaker 7

Thank you, operator. Good morning, Elaine.

Speaker 1

Hey, good morning, Jason.

Speaker 7

Two quick things here. 1, wanted to focus a little bit on the Daseke side. I think heading into your earnings print, we were a little concerned given what we saw sort of some weaker pricing in the flatbed market. So maybe if you could sort of dive into that. Was that maybe offset by some strength in your specialty business?

Speaker 1

You know what, Jason, for sure. I mean, if you compare year over year, our revenue per mile, okay, in our specialty operation in the U. S, specialty truckload operation, we're down. I mean, we're down. There's no question about that.

Speaker 1

We're having price pressure in there. But at the same time, okay, revenue per truck is up because we do a better job of reducing empty miles and etcetera, etcetera. So I'm really happy with this Daseke acquisition in terms of the operating units. And these guys, Daseke was a roll up, right? And first thing that we're trying to do is to break all these walls between those operating units within Daseke.

Speaker 1

So as we speak, there's a weekly call between all of our flatbed operation in North America between U. S. And Canada. So everybody is on the same call talking about the market, the environment, the opportunities, etcetera, etcetera. So this is why I feel really, really good that even in a soft market, because the market today is softer, we have more pressure on price, on rates per mile today than a year ago, okay.

Speaker 1

Hopefully, this starts to change hopefully next year. I don't see that changing this year. But now we do a better job. We're more efficient and we'll continue doing that.

Speaker 7

So it sounds like that $0.50 accretion number is still pretty good to use?

Speaker 1

Jason, we are conservative. I think that we'll do better than that, but let's be conservative, all right. So as an example, like I was saying earlier, just the IT costs, I mean, we fell off a chair when we look at the IT costs, the consultant, I mean, all these guys taking advantage of the company. I mean we're reducing that. Darren Levine, which runs our IT for our specialty truckload within TFI, now is involved with the Daseke Group.

Speaker 1

I mean these guys, like I said, I think earlier, they used to run Oracle Finance, very expensive Oracle. They pay way more money than us at TFI. So Oracle will probably disappear within Daseke and we're going to move all this to Infineon, huge saving. And then down the road, once everybody is on Infineon, maybe we'll go back to Oracle in 2 to 3 years, but it's going to be more of a TFI Oracle, not a daskey Oracle that costs a fortune. We have to pay Deloitte to support us, which is nonsense.

Speaker 1

So we have a lot of work to do on the admin side. At the same time, okay, we have a lot to do within the business unit to be more efficient in talking to one with the other, right, eliminating those walls between the business units.

Speaker 7

That sounds good. And if I could just follow-up on something Walter was asking about on the potential Canadian rail strike. I mean, do you guys already have alternative setup to sort of supplement a line haul? Because I can't remember the last time both Canadian rails went on strike and this would obviously impact your Canadian LTL line haul, big deal?

Speaker 1

Yes, for sure we have plan, Jason. Hopefully, this will not happen. And I think that the federal government will get in fast because this is going to be terrible for the Canadian economy. So for sure we have plans, for sure we know what to do. And so far between you and me, Jason, fires is more of an issue for us.

Speaker 1

Flood and fire, okay, is more of an issue than rail strike. I mean, fires is becoming a big problem, okay, and flood too.

Speaker 7

Yes. And I saw the news up in Jasper that was pretty bad. Well, Lane, I appreciate your time as always and have you guys stay safe out there for sure.

Speaker 1

Thank you, Jason.

Operator

Thank you. Next question will be from Kornant Gupta at Scotia Capital. Please go ahead.

Speaker 1

Good morning, Elaine. Good morning, Kornath.

Speaker 2

I wanted to ask you on DESKI. Thanks for sharing some of the details here and good to see a pretty good quarter from the truckload business despite all the pressure you're seeing in the market. Obviously, DASI seems like it's progressing well. Can you help us understand like what was the exit June OR run rate at DESCY? And how do you see the bridge to sub 90 OR there?

Speaker 2

Like what are some of pit stops? And what are some of the key drivers besides IT, etcetera, to get to sub 90?

Speaker 1

Yes. So I would say that if you look at DESKES Q2 number, okay, so most of our guys are running close to a 90 war. So we have one business unit right now that loses money. But by the end of August, they will stop losing money because we're going to shut them down, right, and move whatever good business remains into other business unit within the TFI world and the U. S.

Speaker 1

And then I've got another one that is running a very high OR of 98. So after we've got rid of that one that loses money, it's going to be the next one. And then I've got another one that's running a 95 OR. So this is why on average, okay, we are closer to a 90 2, 91, 92, 93 OR globally, okay. But we're going to weed out the losers and we're going to improve the ones that can be improved.

Speaker 1

But then again, like I said earlier, we need to talk more between the TFI specialty truckload business unit and that's something that have started already, okay, because there's lots of opportunities. Within DESC, you've got 1 or 2 business units that are running today sub-nine OR. But even those guys running sub-ninety OR, let's say, they are 87, but because market conditions are difficult, normally they should be running an 80, 80 2, 83 OR. But as an example, insurance, okay, at Daseke is something that was not done well. So we are improving, okay, our insurance costs, the way it's been done, but I'm stuck with one deal that was signed for 3 years.

Speaker 1

So I'm going to have to suffer for another 2 years because of this deal that doesn't make any sense, but I'm going

Speaker 4

to have

Speaker 1

to live with. But there's a lot of good stuff within the Daseke Group of Companies. So, yeah, yes, we bought this company and we're going to be under 90 OR within the year, like I said, of acquisition. And admin cost is what was a big thing. I mean, the overhead was costing them a fortune.

Speaker 1

The end office is costing us a fortune in rent and this and that. IT, like I said earlier, and these are all things on the admin side that we're going to be reducing probably 200 basis points to 300 basis points globally. And then sharing best practice, okay, also will help us. So I feel really, really good because if you look at what we've done, okay, global ETFI in the U. S.

Speaker 1

In Q2 specialty truckload, I mean, we're running just a sub-eighty 9 OR, right? This is with Daseke. Now you're going to say, well, last year you were an 85, absolutely. Okay. But even our legacy business of TFI, okay, without DESE, in Q2, we're not running an 85 wire.

Speaker 1

We're running probably an 86.5. I don't have the numbers close to me because the market is way more difficult this year than a year ago. So this is why when you add Daseke, okay, with 1 quarter only and we're able to combine the 2 into 1 and come up with an 88 OR, I said, Mr. Brookshaw and your team, you guys have done a fantastic job.

Speaker 2

That's great color, Alain. I think it seems like you guys are on a very good path on that ski for sure. Okay. And just a quick follow-up on the LTL side, I know you laid the ground with some factors about how the rates could evolve and what you're probably planning to do on the cost side. I wanted to ask you about the competitive dynamic here that could unfold over the next year or 2.

Speaker 2

One of the biggest actually the biggest LTL player in the market is looking to divest the freight business FedEx. I wanted to know how do you perceive that as a competitive dynamic change situation if at all that happens?

Speaker 1

Well, you know what, Gunnar, if this happens at FedEx, I mean, we would be the happiest guy in the world. I mean, I think that would be great for the market. I think that this is a great company, FedEx Freight. And being standalone, I think it would be fantastic. We have a relationship with them.

Speaker 1

We work with them in 2 areas of BC, mostly the Vancouver area. We also work with them in Saskatchewan. We're having discussion with them if we could try if we can help them elsewhere in Canada. So I think that having this spin off, if ever it happens, I think it's going to be good for the market overall. And I think it's going to be really good for us as TFI.

Speaker 2

Makes sense. Perfect. Thanks so much, Alain. Good luck. Thank you.

Speaker 1

Thank you. Thank you, Kennard.

Operator

The next question will be from Jordan Alliter at Goldman Sachs. Please go ahead.

Speaker 3

Yes. Hi. Just a follow-up question again on LTL. I know, Elaine, in the past, you talked a lot about service on LTL. And I don't know if I heard as much about it today, service being like a critical cog, getting that revenue per 100 way to at some point inflect positive.

Speaker 3

So can you maybe talk a little bit about LTL service where you are? And thank you.

Speaker 1

Yes. Yes, that's a very good question because without service, it's difficult for you to grow the business. It's also difficult to you to guard and protect. So absolutely, this is a balance between cost and service. So what we've been trying to do is improve the service at the same time reducing costs.

Speaker 1

And for sure, when you take the culture of a company that's been really lazy not being focused like some of my peers are in terms of cost and service, it doesn't change overnight, right? So what we've been able to do is to change the culture that guys we can improve service and reduce costs at the same time. So where we've been very successful is on the line haul. Why? Because we were able to move away from rail to a certain degree.

Speaker 1

Okay. So 4% of our miles today are not on rail anymore, they are on the road with our own people. So that improves the service. So yes, you're scared because all cost of the road is going to be more than the rail. Well, we were able to do that at a kind of a breakeven.

Speaker 1

So guys would say, guys, we've improved service and there's not been an effect on costs, okay. So we have not moved costs up. Those 4% miles now makes a lot of sense. They're on the road. On the P and D side, well, there again, what we're trying to do is, okay, reduce the missed pickup because are you crazy?

Speaker 1

You can't miss a pickup because then if you miss the opportunity of the revenue. So the culture there was, well, I got to bring back my guys, okay, or we're not set up because if you think about an LTL company, what the focus is on delivery, right? Because that's the first thing you do in the morning. The guy leaves and does his delivery. And then if he has time left, then he does the pickup.

Speaker 1

And me, what we are doing in Canada is we change this philosophy. The Canadian philosophy is that yes, we have to deliver the freight in the morning, but your role number 1 is to pick up freight. Why? Because if you don't pick up freight, then you don't have the revenue. So we're changing that culture also on our U.

Speaker 1

S. LTLs is that guys, priority number 1 is to pick up everything that we can, but we have to make sure that we also deliver the freight. So there's a balance there between service and costs, right? But again, we have better tools today to manage all this and with financial information, we have better managers, dispatcher has to be involved and it's a team effort, right? So we are improving service definitely and at the same time, we are reducing costs, but not enough.

Speaker 1

And like I said, a lot of our reduced cost has to come from admin. Okay. Our admin cost is too high, but that's got nothing to do with the operation, right. So our labor cost per shipment is better, okay, and we continue to improve that, But that's also a team effort. So we need our sales people to understand that we need more freight per stop.

Speaker 1

We need to travel less miles to pick up freight because we don't want to go 90 miles away from our terminals to do a one pickup, etcetera, etcetera. So it's a global effort. But Jordan, I mean, service is priority number 1, okay, because you can't grow the business without the service.

Speaker 3

Great. Thank you.

Speaker 1

You're welcome.

Operator

Thank you. Next question will be from Daniel Imbro at Stephens. Please go ahead.

Speaker 8

Yes. Hey, thanks. Good morning. Thanks for taking our question. Elaine, I want to follow-up on U.

Speaker 8

S. LTL. You talked about being lean and obviously that's showing up in EBIT per shipment kind of up sequentially despite the revenue per shipment being down. I just want to understand the back half outlook. So is your expectation that this mix headwind continues on the U.

Speaker 8

S. LTL for revenue per shipment, but that you can just offset it by finding more efficiencies and being leaner in the back half, so revenue so EBIT per shipment could keep growing?

Speaker 1

Yes, absolutely. Because you know what, we don't control the market and I think that the market has been soft in 2024 and I don't see it getting stronger. So the only way that we can be successful is we have to do the job ourselves on the cost side, right? So I'm saying the same thing again and again. I mean the admin cost of T Force rate is like 500 basis point too much compared to what we do in Canada.

Speaker 1

So this got to be a focus of ours. Our IT cost is about 2 or 3 times more than what we have as an IT cost in Canada. So that's the focus now. Don't forget, IT, we could not really work on IT because until a year until let's say summer of last year, we were stuck with a lot of spend on IT because we had to walk away from UPS on the TSA, but that's behind us now. So we have to keep reducing this cost.

Speaker 1

So the market is the market going to help us in Q3 and Q4? Hopefully, but I'm not sure about that. What I can be sure of is that Bob and Keith, okay, and their team, they have to be focused on doing more with less.

Speaker 4

Yes. That makes a lot

Speaker 8

of sense. And maybe to follow-up more directly is on LTO pricing. If we strip out this mix north, I guess, first, should that mix headwind continue to worsen in the back half? It sounds like yes. When do you think that will turn the corner when you look at the business?

Speaker 8

And if you exclude mix, I guess, how are contracts like for like repricing today? Are they still pricing at a similar level of increase ex this mix shift as they have been in the last few quarters?

Speaker 1

Yes. I think the pricing is not so bad right now. It's okay. I mean, it's not very strong. But then again, I mean, I don't foresee Q3 and Q4 in terms of the market condition to improve.

Speaker 1

Are they going to get better? I don't think so. Are they going to get worse? I don't think so. I think it's going to be more steady heavy.

Speaker 1

Us, the only way we're going to break this 90 OR once and for all, we have to grow our GFP, which is an asset that nobody has. And also we have to reduce our costs. That's the only way we're going to break this 90 or.

Speaker 8

Helpful color. Thanks a lot.

Speaker 1

Thank you, Daniel.

Operator

Next question will be from Benoit Poirier at Desjardins Capital Markets. Please go ahead.

Speaker 9

Hey, good morning, Alain, and congrats for the strong execution overall.

Speaker 1

Thank you, Benoit.

Speaker 9

Yes. Just looking at your comments with respect to M and A skewed toward logistics and also LTL in 2025. Could you maybe remind us about your comfort level in terms of leverage? And what are kind of the M and A envelope that you would be looking in 2025?

Speaker 1

Good question, Benoit. So if we don't do anything of size, okay, let's say until Q3 of 2025, our leverage is going to be under 1, okay. So we're going to end up the year probably at 175 and after 3 quarters of 25, our forecast is that we're probably going to be at between 0.5 and 0.75. So this is why it's never going to happen. This is why something of size will happen.

Speaker 1

Now we bought Daseke for $1,100,000,000 last year well, no, last year, this year. Okay, we made the deal last year, but it's this year. So I think that for TFI, easily we could do a deal between $2,000,000,000 $3,000,000,000 of costs for TFI. And I think that you've noted about a year ago in your note is that, I mean, you can't stop TFI. Why is that on M and A because they generate so much cash, right?

Speaker 1

And you were right. That is the proof. The proof is in the pudding right now, right? So we bought this company for $1,100,000,000 and in Q2 we reduced our debt by $100,000,000 and we reduced our debt for the year by about $500,000,000 to $600,000,000 and bring the leverage down to $175,000,000 I think TFI is probably one of the best story that's not known is how big TFI is on the free cash flow and what's the opportunity that creates with a free cash flow machine like TFI, right? So this is why I think that if you look at the end of 'twenty five, because what we're talking about is probably more like in the summer of 'twenty five to the fall of 'twenty five, if we are successful, because M and A, you can try, but we've been very good at that.

Speaker 1

But until you get the deal done, you're never sure that the deal is going to get done, right? So we feel good that we're going to be very well positioned late 20 25 to do a deal of size that could be up to $3,000,000,000 And if ever there's also part of that in paper, well then it could be maybe up to $4,000,000,000 or $5,000,000,000 We'll see.

Speaker 9

Okay. That's great color. And just in terms of follow-up question, you made great comments about the overall market environment and also some comments about our expectation for U. S. LTL.

Speaker 9

When looking at 2025, I know it's still early, but how much should be do you need the economy to be supportive in order to achieve US9 dollars of EPS next year. I'm just curious about any key levers or moving parts, including the $0.50 of EPS accretion from Daiseki?

Speaker 1

Yes. Well, there's one thing that's easy to say Benoit is that when our leverage goes down, my interest cost also goes down. So if you look at Q2, my interest cost went through the roof, right? Okay. So one easy thing that's going to happen without doing anything, right, by reimbursing the debt, okay.

Speaker 1

So if we reimburse $500,000,000 $600,000,000 okay, that will not exist next year, that's already after tax $20,000,000 $25,000,000 and we'll continue to reducing that. So overall in 2025, if we don't do anything of size, we'll probably going to generate $40,000,000 after tax, okay, just on reduced interest, right? So that's very easy to do because the only thing we have to do is pay down the debt, right, with our free cash flow. So that's going to help us. I think that our specialty truckload by moving our friend Daseke from, let's say, a 95 OR, okay, 93 to 95 OR, they were back down to under $90 Well, we said $0.50 for $0.25 for the contribution for DESC.

Speaker 1

I think we'll do better than that, okay, from what I'm seeing. Now if the market is helping us, well, maybe it could be better than $0.50 or maybe it's going to be like $0.75 or to $1 But don't forget that if you look at my other specialty truckload, I mean, normally in a good year, we used to run specialty truckload at TFI around 80 OR. Okay, now we're in 88 OR. So if we go back to a more of a normal market, the 88 OR will come down to 83 OR. And if the market is really good, we'll probably go down to 80 maybe sub 80 OR.

Speaker 1

Now that we have Daseke in the family because we have less competition now, right. And then you look at our T Force rate, the market stays the same, market does not really improve too much, But us, we're so fat on the cost side, the admin cost side, the IT cost, I mean, and all that. To me, we have to reduce all the admin costs between now and a year from now, at least by 200 basis points, right. So this is all going to flow to the bottom line and this is the way that we're going to get not $7 EPS like we will probably hit in this year, dollars 24. I mean, we have to do better than that even if the market is not too supportive in 2025.

Speaker 9

That's very good color, Alain. Merci. Thank you.

Speaker 1

Pleasure, Benoit.

Operator

Thank you. Next question will be from Cameron Doerksen at National Bank Financial. Please go ahead.

Speaker 10

Yes, thanks. Good morning.

Speaker 1

Good morning, Cameron.

Speaker 4

So I want to come back just

Speaker 10

to the logistics segment. Obviously, a segment that's doing quite well. I just wonder if you could talk a little bit about the trends and kind of the individual businesses within logistics. I mean it's a bit of a grab bag of different businesses in there and you obviously some of the 3PL businesses are doing it's tough market, but just any color you can provide on how some of the other businesses doing in there? And then what's the key driver here of the improvement?

Speaker 1

Yes. So within our logistics, Cameron, okay, sector number 1 is our last mile operation. Okay. So last mile operation is U. S.

Speaker 1

And Canada. It's a combination of both countries and those guys are really, really doing well, right. So those guys are sub-eighty five or more, right, because we're not stupid. We're not in business to practice delivery, right. So we service customers, we reduce our costs, we're very lean and mean.

Speaker 1

So that's number 1. Then number 2 is we have our brokerage operation, okay, which the biggest player in there is our T Force worldwide operation. Now these guys have suffered big time, okay. So the revenue is down. These guys used to be a $600,000,000 $700,000,000 company.

Speaker 1

Now we're down to about $550,000,000 and also the margin have suffered as well. So that sector is not doing as well as the rest. And the rest of our brokerage operation are also suffering, okay, on the revenue side, but not so much on the profitability side. So revenue is down, profitability is about stable with the rest of our kind of brokerage operation. And the third is what we call our specialty services where we move all kinds of stuff, right.

Speaker 1

So GHT being the largest player in that sector, okay, but we have other sector and this as running a great operation for us, right. So it's really a combination of those 3 sectors. So our last mile is doing really, really well. Our equipment moving sector as well doing well. The only small weakness we have is in our brokerage operation.

Speaker 1

But when you do the sum of all this, I mean we keep improving, okay, in terms of profitability. So like I said earlier, for the first time, we broke the 90% OR, right. So we're just a little under 89%. We believe that 25 is going to be even better than 24, okay, globally for us and even 26 is going to be better than 'twenty five. When we look at our forecast about our last mile operation, our equipment moving operation, etcetera, etcetera, and the potential of adding into that sector, because we're looking at some small transaction that would beef up this sector, hopefully this year, maybe into next year.

Speaker 1

We feel good. I mean, if you look at our return on invested capital, it's above 20 like our P and C is above 20. So this is really a sector that we love, but if it's 2% bottom line, we're not big fan of that. But if we could again an OE of around 10 points. Sure, we'll look into that.

Speaker 10

Okay. That's really helpful to get that detail. And maybe just second question for me, more of a curiosity. I'm just wondering about the decision to move P and C into the LTL segment. I mean, I would have thought it might make more sense to move into logistics, just given that you already have a package delivery business within logistics.

Speaker 10

So just wondering about the rationale there.

Speaker 1

Yes. You know what Cameron? Yes, I never thought about that. But at the end of the day, really P and C is a network operation, whereas our last mile operation is not a network. So last mile is in logistics, but it's not a network, right?

Speaker 1

So we don't run network in our last mile. Whereas in our P and C, we run a last mile. What am I saying? We run a network, right? So that's why it makes sense to be part of LTL because LTL is also a network.

Speaker 10

Okay. No, that makes sense. Appreciate the questions. Thanks very much.

Speaker 1

Okay, Cameron. Pleasure.

Operator

Thank you. Next question will be from Bascome Majors, Susquehanna. Please go ahead.

Speaker 11

Elaine, as you look forward, you've mentioned the potential spin off that you publicly disclosed about 8 months ago,

Speaker 10

a couple of times on the call. How do

Speaker 11

you feel today 8 months further into both, I guess, a few months into integrating Daseke, but 8 months further into the cycle about both the fundamental industrial logic and the, call it, valuation arbitrage logic of that decision as you look forward? And between that and integrating do you think those are some of your final big moves for the business before you start to move further into retirement? Or is these kind of $2,000,000 $3,000,000 $4,000,000,000 $5,000,000,000 deals that may come up

Speaker 7

in the next couple

Speaker 11

of years, you think those come under your umbrella as well? Thank you.

Speaker 1

Yes. You know what, that's a very good question. And that's the kind of discussion I had with the Board yesterday. And I told the guys, listen, I have to do this deal, okay, the spin off down the road. So this is why I said, guys, I'm in at least for another 5 years.

Speaker 1

So sorry to say for the guys that want to take over CEO's position at TFI, Alain is there at least for another 5 years because this is going to have to happen under my watch, right? And it's not going to happen to now. Why? Because like you just said, we have to digest DESCY. And I think that Steve and his team are doing a fantastic job and it will take us at least a year.

Speaker 1

But so 'twenty five will go by, right? And then in 'twenty five, if we're successful trying to add revenue, okay, in the sector that we love in North America, then we will be well positioned to do something maybe late 2026 into 2027. And that is the timeline. But don't forget that at the same time, Bob and his team at T Force rate, okay, have a big job to do, okay, into generating a little bit more revenue, but even more importantly, way more OE than what we're doing now.

Speaker 11

Thank you for that.

Speaker 1

Pleasure.

Operator

Next question will be from Kevin Chiang at CIBC. Please go ahead.

Speaker 12

Hey, Elaine. Good morning.

Speaker 1

Good morning, Kevin.

Speaker 12

Thanks for squeezing me in here. Maybe just one clarification question. I don't know if you mentioned this earlier, you talked about a sub-ninety OR on U. S. LTL without an improving without the need for an improving macro.

Speaker 12

I know you were initially targeting 88 this year, that's a little bit more difficult.

Speaker 1

We be

Speaker 12

thinking of that being kind of shifted into 2025? Was that kind of the messaging there?

Speaker 1

Yes, absolutely Kevin. I mean, part of this commitment from our team, okay, to get an 88 OR in 2024 was based on cost and also based on improving the shipment scan. The shipment scan is not happening, right? So we are flat. Shipments were flat.

Speaker 1

We've improved the quality of the shipment, yes. Okay. No doubt about that. And then we have also improved the cost to a certain degree, but not enough, right? So what we're saying is that guys, okay, so let's change the thinking that let's say the volume will stay about steady or maybe improve a little bit, but that's not going to help us.

Speaker 1

So we got to double the effort into be faster and being more efficient and reducing costs. And we got to be mentally ready to be on a diet, okay, at T Force rate, diet on terms of costs, right? So we got to do a better job of doing more with less. I mean, we've been doing that in Canada for a long time. If you look at if we can run Canada with a sub-eighty OR like we're doing now, as a matter of fact, we're what 75 OR I think in Canada.

Speaker 1

Even with the Kindersley acquisition that Kindersley, those guys, they were not making a lot of money. But Kindersley in Q2 now is running a 95R, which is, wow, from not making money to being a 95 OR after 2 quarters. I mean Cal and his team in Canada have done a fantastic job. So I'm just saying that the Canadian LTL team are doing really, really well and we still have lots of work to do to improve, okay. But in the U.

Speaker 1

S, I mean, don't forget more and more Bob, okay, is involved with Keith and trying to bring this TFI culture of doing more with less. Now we have also Tim involved into the fleet management. I'm feeling really good about this young guy that's going to help us reduce our maintenance costs even more. Because don't forget, we're making a lot of investment in CapEx for T Force Freight, but so far the return has not been where it should be. So we brought, okay, another team member in there to that's got the TFI culture.

Speaker 1

He's a TFI guy. And I feel really good that that's going to help us be more efficient. The same thing on fuel, right? So with the fact that now Daseke is part of the family, well, we should have a better deal on fuel and down the road, this should benefit T Force rate as well, right? Sure.

Speaker 1

So it's a global effort with everything that's going on, okay, this soft market. And if you believe that this soft market will disappear in 6 months, I hope you're right. But as we're getting ready that it may not happen, right? So guys, don't hope for the market. Start now, every day, be more efficient, do more with

Speaker 12

less. That makes sense. And just maybe in your P and C division, just wondering if you're seeing any benefits or disruption from Chinese e commerce. I mean, there's been a lot of headlines around that the past I guess, past little bit here. Is that something you're seeing within your P and C network up here in Canada?

Speaker 1

Not yet. Not yet. The biggest issue we have in Canada has always been the same e commerce guy that's moving more and more of its shipments in house. Right. And the guys that are serving him used to serve him, okay, are losing the volume and now they become very aggressive, right?

Speaker 1

So this is why we had a really soft patch in Q1. When we look at our P and C results in Q1, it was a disaster. But don't forget, Q1, 2024 reflects the decision that was made in the summer of 2023, and we made some mistakes there. So Chris took over that, and we're doing a much better job and we will keep improving Q3 and Q4, but it's a tough market. So if you look at our revenue per shipment in our P and C, we're down a bit, okay.

Speaker 1

There's more pressure over there because the biggest e commerce in Canada is moving freight in house and we got some of our peers that are stuck with their pants down.

Speaker 12

Right, right. That makes sense. I'll leave it there. Have a great weekend, Alain. I appreciate you taking my questions.

Speaker 1

Thank you. You're welcome.

Operator

Thank you. And at this time, Mr. EBITDA, we have no other questions. Please proceed.

Speaker 1

All right. Thank you very much, operator, and thanks everyone for joining us today. We'll keep you updated as we move through the year and we look forward to our next call. And in the meantime, please don't hesitate to reach out with any additional questions. Enjoy the weekend and we'll be in touch.

Speaker 1

Thank you.

Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines.

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Key Takeaways

  • Consolidated Results: Revenue before fuel surcharge rose 27% year-over-year to $1.96 billion and operating income increased to $208 million, though operating margin eased to 10.6% from 12.4%.
  • Strong Cash Generation: The company generated nearly $250 million of net cash from operations and $151 million of free cash flow in Q2, ending June with a funded debt/EBITDA ratio of 2.15 and repaying $100 million of debt.
  • Daseke Acquisition Impact: The April acquisition contributed $329 million of revenue and $23 million of operating income in Q2, included a one-time $20 million restructuring charge, and is expected to deliver meaningful cost synergies.
  • Truckload Performance: Segment revenue before fuel surged to $738 million and operating ratio impressively held at 88.7%, driven by productivity gains in specialized operations amid a weak freight environment.
  • LTL Challenges: Segment volumes were flat, revenue per shipment faced mix headwinds, and U.S. LTL operating ratio stayed around 90.8%, leading management to prioritize aggressive cost cuts and efficiency improvements.
AI Generated. May Contain Errors.
Earnings Conference Call
TFI International Q2 2024
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