Alain Bedard, the only executive of Canada’s TFI International who spoke on the company’s second-quarter conference call, has plenty of acquisitions he’d still like to do. But the area that appears to need the biggest assistance while being a key target is less than truckload (LTL).
The fundamental problem that Chairman, President and CEO Bedard sees, according to his statements in the call, is that TFI’s LTL business depends heavily on retail business that has been suffering for years and is now likely to be decimated further by the pandemic.
“Our [Canadian LTL] revenue dropped like 25%. It’s terrible, but don’t forget that the LTL in Canada is suffering from e-commerce,” Bedard said, according to a transcript of the earnings call supplied by SeekingAlpha. (FreightWaves also listened to the call).
The answer to these sorts of issues at TFI tends to be an acquisition. It isn’t any different this time, based on Bedard’s comments. “If we can find the right company in Canada today, absolutely, like we’ve done,” he said, referring to the acquisition of intermodal LTL provider National Fast Freight of Ontario at the end of 2016.
NFF, Bedard said, had revenue of $80 million when acquired, “but they were losing $8 million. So today NFF’s revenue is about half of what it was, but they’re not losing money. They are making more than 10 points on the revenue that’s left.”
Industrial demand for LTL services in Canada is limited; “most of the plants are already closed,” Bedard said. Given that, “the way we see LTL in Canada is that unless we do some M&A, our revenue is going to shrink organically.”
That idea is not new, Bedard suggested. It was in place when TFI bought NFF.
During the call, Bedard said LTL is 16% of the company’s revenue. Before fuel surcharge revenue, it was down 28% in the quarter year-over-year.
Operating income was up 10% from the prior year to C$33 million (U.S. $24.6 million) but the company received a Canadian wage subsidy of $17 million (U.S. $12.6 million). The Canadian wage subsidy program is similar to the Paycheck Protection Program (PPP) in the U.S. However, publicly traded companies in the U.S. are not eligible for PPP funds, unlike TFI in Canada.
TFI took a significant step in the second quarter by merging LTL providers Canadian Freightways with TST Overland Express, creating TST-CF Express. “This provided a meaningful margin benefit during the second half of the quarter, and we expect that benefit to continue going forward,” Bedard said.
Bedard expressed concern about LTL even as its OR for the quarter improved to 78.9% from 86.2% from the second quarter of 2019. OR improvements were also recorded in the company’s Canadian truckload operations, to 86.5% from 87.1%, and its specialized division, which improved to 78.6% from 87%. Canadian wage subsidies would be in those figures for Canadian operations.
The U.S. truckload OR deteriorated to 91.8% from 90.2%.
Bedard at times on the call talked as if the usually aggressive acquisition program at TFI had been put on hold during the pandemic. But TFI made three acquisitions in June alone: a Canadian company called Gusgo, which specializes in container movements and storage, and two pieces of Comcar, being broken up through Chapter 11 bankruptcy. The two Comcar subsidiaries picked up by TFI are flatbed operator CT Transportation and reefer and van company MCT Transport.
Those were followed by the Friday announcement that TFI had acquired Keith Hall & Sons, an Ontario hauler heavily involved in moving food and liquids.
The Comcar acquisitions came as something of a surprise, not because TFI bought them but because it needed to step in front of other buyers already lined up by Comcar.
During the call, Bedard said it was a “compelling opportunity” to acquire the two companies, “further adding to our specialized truckload capabilities.” CT is a flatbed provider whereas MCT leans heavily toward the reefer business. “Both are excellent strategic fits with strong customer overlap, and network synergies throughout an expanded geographic reach in the U.S.,” Bedard said.
Bedard may have had the Keith Hall deal on his mind when he was asked about M&A and replied, “I think that something important can be reality within the next year, absolutely, maybe even shorter.” (The Hall deal is for a company with C$30 million in revenue so it’s relatively inexpensive, though a price was not disclosed.)
He also may have had the then-imminent Hall deal on his mind when he said, “The small deal in Canada, for us it’s easy, because we have a team that’s second to none. It’s easy for us to integrate a $30 million or $40 million or $100 million business in Canada.”
“I think that the environment for M&A is OK, with about $1 billion in available funds, I think it’s the way to go for us,” Bedard said. “It’s in our blood; that’s what we do for 20 years and more.”
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