TFI International reported stronger second-quarter results, with revenue rising 12% from a year earlier to $2.29 billion and net income increasing 39% to $136.2 million as improving freight market conditions and acquisitions boosted results.
Operating income increased 29% to $220.4 million, while diluted earnings per share (EPS) rose 41% to $1.65. Adjusted diluted EPS increased 38% to $1.85, and revenue before fuel surcharges climbed 6% to $1.9 billion.
Chairman, President and CEO Alain Bédard said all three operating segments posted higher revenue and operating income during the quarter, allowing the company to exceed its earnings outlook. Truckload led the way, with operating income jumping 50%, while logistics operating income increased 32% and less-than-truckload operating income rose 17%.
TFI generated $202.1 million in free cash flow during the quarter, up 11% from a year earlier.
When discussing results with analysts, Bédard said TFI International is moving aggressively to raise prices in its U.S. less-than-truckload (LTL) business after acknowledging it became “the cheapest guy in the country” in parts of its network.
He also said tighter truckload capacity and stricter enforcement against noncompliant carriers are creating a more durable freight cycle.
Bédard admitted to analysts that the company’s U.S. LTL operation took on too much low-priced freight from third-party logistics providers, creating a surge in volume that strained capacity without delivering adequate margins.
“We have too much volume and not enough price, and that’s what we’re working on fixing,” CFO David Saperstein added, describing the issue as one the company believes can be corrected relatively quickly.
Focus on rates
Bédard said the biggest issue was blanket-priced 3PL freight.
“We got inundated with volume because probably we were the cheapest guy in the country,” he said. “That’s a no-no… we’re very, very cheap right now with our rates in some sectors, so we’re fixing that now.”
The company expects shipment volumes to decline somewhat as rates are increased, but executives said the move should improve profitability while easing costly capacity pressures that led to overtime and increased use of third-party carriers during the quarter.
While LTL remains a work in progress, Bédard struck a far more optimistic tone on truckload, saying the current pricing environment differs from previous freight cycles because it is being driven by constrained capacity rather than surging demand.
“What I like about this, which I’ve never seen before in 30 years being a trucker, is now it’s the supply,” Bédard said.
He pointed to a series of U.S. enforcement initiatives — including stricter commercial driver’s license requirements, enforcement of English-language proficiency rules and additional scrutiny of unsafe drivers — as reducing industry capacity.
Bédard also suggested Canada is beginning to see benefits from increased enforcement aimed at the Driver Inc. model, noting that requiring drivers to receive T4A slips is making tax avoidance more difficult.
“It’s still there, but it’s not as bad as it used to be,” he said.
Staying power?
Asked whether the current truckload recovery has staying power, Bédard said he believes the supply-driven market is more sustainable than previous cycles.
“I think this move that we’re seeing now… is more of a permanent thing than we’ve seen before,” he said.
Saperstein added that freight brokers are also becoming more selective about the carriers they use.
“The whole industry is being cleaned up in a way that’s going to result in better safety,” he said.
Bédard responded: “Yeah… no more cheating.”
The company also highlighted continued strength in its specialized truckload business, citing strong demand from wind energy, aerospace, steel and data center projects.
Bédard said TFI’s reorganization of the former Daseke operations into specialized niche roles is beginning to pay dividends, while Saperstein noted truckload revenue per tractor accelerated throughout the quarter and depreciation costs have fallen sharply as the fleet is better matched to demand.
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