Sequential numbers at diversified trucking operator TFI International may mark a turnaround

While the year-on-year comparisons in TFI International’s second quarter earnings showed a company that was still struggling, investors–and the analysts on the call who offered congratulations on the results–appear to be looking at other metrics that sequentially showed a trucking company that may have turned things around.

The first small indications from the equity market saw a post-close and earnings announcement gain in the price of TFI (NYSE: TFII) stock–which is down more than 40% in the last year–of more than 6%.

TFI’s overall adjusted net income of $1.34 per share was down from $1.71 in the corresponding quarter a year earlier. However, according to SeekingAlpha, it was still 11 cents better than forecasts.

A relatively ebullient Alain Bedard, CEO of TFI, cited numerous numbers on the earnings call to boast about the company’s performance.

Bedard said the struggles at the U.S. LTL operations had made “a few shareholders…very disappointed. They were disappointed that they thought that we’ve lost control of TForce Freight,” the operating name of the U.S. LTL operations.

“So now we’re starting to show that, no, we’re back in control,” he added.

Bedard mostly stayed away from comparisons against the second quarter of 2024, where the year-on-year changes generally do not look good.

Instead, Bedard focused on numbers like this: in the second quarter, the adjusted EBITDA margin for the company’s LTL business was 17.8%. The truckload margin was 22.4% and in its logistics segment, that figure was 13.6%.

By comparison, the respective numbers in the first quarter were 14.4%, 19% and 12.2%.

There were other numbers that were improved. For example, TFI’s total LTL operating ratio (OR) was 89.5% in the second quarter. It was 93.1% in the first quarter in the metric where the lower, the better.

The U.S. LTL segment, which includes the TForce Freight segment built out of the acquisition of UPS’s LTL division, had an OR of 94% in the quarter. In the first quarter, that number was 98.9% .

Canada’s LTL OR slipped slightly to 80.6% from 80.2% in the first quarter.

But the first metric Bedard addressed in the call was TFI’s free cash flow (FCF).  The company reported FCF of $182 million in the quarter. “Strong free cash flow is always a top priority at TFI International,” Bedard said.

The second quarter FCF number was down sequentially from $191.7 million in the first quarter,  but up from $151.4 million in the corresponding quarter a year ago.

Bedard at times in the past year or two has often been blunt in his assessment of the operations of TForce. The segment has been troubled enough that Bedard last October felt it necessary to tell analysts that the purchase wasn’t one he regretted. He also has been critical of the group,

including a call one year earlier when he described the company’s operations as “too fat.”

But in the last two quarterly earnings phone calls, including Monday’s, he has been far more positive.

“Our volume is still too soft,” he said. “But what the guys have done so far is improved the mix of our freight, year over year.”

One U.S. LTL benchmark that did not improve was yield. Revenue per hundredweight excluding fuel in the U.S. LTL operations, referred to in the LTL industry as yield, was down to $25.80 in the second quarter from $27.62 a year earlier. Sequentially, that number was down from  $26.81.

On the call, David Saperstein, TFI’s CFO, said the company had a higher weight per shipment in the quarter, which tends to push down yields.

Even with so much focus on the struggling U.S. LTL operations, the latest two earnings calls also have featured a discussion on the company’s U.S. speciality truckload operations, which is mostly the operations of formerly publicly-traded Daseke, which TFI closed on in April 2024.  

Operations at Daseke are in for a change, Bedard said, and the company’s focus on generating FCF is a driving factor.

The flatbed operators were “good truckers, but we’re changing those guys into good business truckers,” Bedard said. “You’ll see us brokering more freight to the market and driving less miles with our own assets,” he added, noting that a similar model is in place for TFI’s specialty trucking operations in Canada.

Daseke, he said, “their thinking was we have got to run it ourselves. We’re changing that in the U.S.” By doing so, FCF can be improved because “you’re not stuck with the capex or the accidents,” Bedard said.

Taking a similar approach in the U.S. LTL sector is difficult because of the fact that the operations that came over in the UPS deal are unionized, according to Bedard.

Describing a company with almost 4,400 vehicles as “asset-light” may seem odd, but Saperstein echoed Bedard.

“When we start making a lot of money, we’re not going to go out and celebrate and buy trucks,” Saperstein said. “We’re going to buy the trucks that we need while continuing to migrate toward the more asset light model in the recently-acquired businesses,” he said.

Cash flow should rise along with earnings “and you will not see any sort of large step up of adding capacity,” Saperstein said.

All of the discussion about Daseke was not negative. Bedard said the legacy UPS LTL business was “a retail machine.”

And the legacy Daseke business, with its deep ties into the industrial sector, is providing an opening for TForce, Bedard added.

“We said let’s move more into the industrial environment,” Bedard said. “And through the Daseke sales team, we’re opening doors to our LTL team to see, hey, can we do something with you guys with all these industrial customers that we service on the industrial side but don’t on the LTL side.”

Both Daseke and the LTL business are being impacted by tariffs, though Bedard was careful not to offer too strong an opinion on his view of the levies.

Bedard did cite the uncertainty brought about by tariffs as impacting what he called TFI’s “industrial truckload base” in the U.S., which is largely built from its acquisition of Daseke.

“A lot of our customers are just waiting on the sidelines saying, hey, where are we going?” Bedard said. “When is this going to end? Because our miles are down around 10%, which is not normal.”

The Daseke acquisition was made, he said, “because we thought that the industrial business in the U.S. will start to grow again. We missed the call. Maybe we were one year too early.”

Asked about the sustainability of the strong cash flow numbers, Bedard described his company as a “cash cow and this is the golden goose of TFI.”

Bedard in the call had boasted about the amount of shares purchased in the quarter as a result of the cash flow: $84.9 million in repurchases, equating to 1,025,000 shares. The company in its earnings statement also said since the quarter finished, it had bought another 475,000 shares.

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