TFI to Put LTL, Truckload Units on Diets as Q2 Profit Falls
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TFI International is going on a diet, cutting costs across both its less-than-truckload and truckload businesses amid what CEO Alain Bédard described as a stubbornly lackluster freight environment.
Bédard also warned analysts during the company’s second-quarter earnings conference call that truck market conditions were unlikely to improve through the second half of 2024 and into 2025.
TFI on July 25 reported Q2 net income of $117.8 million, or $1.38 per diluted share, down 8.1% compared with $128.2 million, $1.47, in Q2 2023. However, Q2 revenue totaled $2.265 billion, up 26.5% from $1.791 billion a year earlier on the back of contributions from acquisitions, notably the $1 billion December 2023 takeover of flatbed specialist Daseke Inc. This revenue boost was partially offset by lower volumes due to the weak freight environment and a reduction in fuel surcharge revenue.
Beyond the weak freight market, TFI’s Q2 results were also hurt by a $19.7 million restructuring charge and a $24 million increase in interest expense related to the financing of the Daseke deal.
Montreal-based TFI ranks No. 4 on the Transport Topics Top 100 list of the largest for-hire carriers in North America and now occupies the top spot on the flatbed sector list thanks to the Daseke deal.
Revenue for the quarter in the company’s LTL division totaled $794.2 million in Q2, up 1% compared with $787.7 million a year earlier, and accounted for 40% of overall revenue. The increase was due to higher weight/revenue per shipment in the U.S., acquisitions and cost management in the U.S. and Canada. While overall legacy U.S. operations saw a $24.4 million decline in revenue, LTL revenue per shipment in the U.S. excluding fuel rose 7.6% year-over-year to $337.35 from $313.61 in Q2 2023. The U.S. LTL unit posted an operating ratio of 90.8 in the most recent quarter, compared with 91.5 in the year-ago period.
Still, as he did during the company’s Q1 earnings call, Bédard lamented the light loads the company’s TForce Freight division is transporting in the U.S. He said the company as a result is seeking significantly more cost reductions.
“Our costs are too high. Our focus at TForce Freight is to be lean and mean,” he said, adding that particular attention is being paid to IT and linehaul costs. “We’re too fat. We’ve got too many costs.”
In particular, Bédard said TFI is scrutinizing financial information for each terminal, and warned that managers who were not performing could be removed. Bédard noted that TForce Freight is running excess capacity in the region of 35%.
TFI’s Canadian LTL unit reported revenue per shipment excluding fuel of $227.70, down 1.8% from $231.77 a year earlier. The unit reported an operating ratio of 75.6 in the three months ending June 30, compared with 73.7 a year earlier.
The Truckload division’s Q2 revenue totaled $737.7 million, up 78% compared with $410.7 million a year earlier, primarily due to the Daseke deal, but also due to strong operational execution, TFI said. Daseke added $329 million to Q2 revenue, Bédard said during the call.
The company’s Specialized Truckload unit saw a 94% increase in revenue to $565.9 million from $291.8 million. The unit’s operating ratio, meanwhile, retreated to 88.7 from 83.9. That said, Bédard told analysts the operating ratio was “impressive given where we are in the freight cycle.”
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However, Bédard said costs need to be slashed at the Truckload division too. “We will continue to extract costs … we still have a lot to do. We’re cutting costs like there’s no tomorrow,” he said. Specifically, he said the company needs to halve Daseke’s IT costs to be comparable to its legacy truckload operation’s costs.
Revenue for TFI’s Canadian Conventional Truckload unit decreased 9.2% to $49.5 million from $54.5 million and its operating ratio slid to 89.3 from 84.3, while its logistics division reported a 24% increase in revenue to $442.4 million from $361.8 million, also on the back of acquisitions and execution.
Looking forward, Bédard is pessimistic about an improvement in the freight environment. “Have we hit the bottom? That’s probably right. Do we see things improving? Probably not,” he said, adding: “For us, I don’t see the market in ’24, ’25 helping at all. It’s all us.”
Bédard added, “It is still a very, very difficult market. ’24 is gonna be a difficult year. When I look at the global North American market, Q3 and Q4 are going to be difficult, although ’25 may be different. I hope I’m wrong. I hope things get better, but I don’t see that right now.”
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