TFI International Inc (TFII) 2012 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to TransForce 2012 second-quarter results conference call. (Operator Instructions).

Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Friday, July 27, 2012.

I will now turn the conference over to Alain Bedard, Chairman, President, and CEO. Please go ahead.

Thank you, Operator, and good morning, everyone.

The news release detailing the results for the second quarter and six months ended June 30, 2012, was issued this morning by Canada Newswire. I will now provide you with a brief overview of our results and some insight into the performance of our operating segments.

TransForce generated great results in the second quarter of 2012. Total revenue reached CAD812 million, a 25% increase over last year. EBIT increased by 39% year over year and adjusted net income grew by 45% to CAD37.8 million, or CAD0.38 per share fully diluted.

We achieved these results in spite of an economy that is basically flat across most sectors in which we do business. As a result, the pricing improvement is very limited, and improving our result is a matter of working constantly to operate more efficiently and to use our assets more effectively. Along with providing superior quality and service to our customer base, focusing on these rigorous operating objectives has been and will continue to be our primary focus.

I will now provide further details concerning our second-quarter results. Total revenue of CAD812 million represents a CAD161 million increase over the same period last year and is due, in large part, to the acquisition of Loomis, Miller, and Quik X.

More importantly, our EBIT, a key performance benchmark for TransForce, significantly increased, driven by ongoing improvements we have made in our operating efficiency and asset utilization within our business and from our strategic acquisitions. Thus, EBIT reached CAD68.6 million, or 8.5% of total revenue, up from CAD49.3 million, or 7.6 of total revenue, in the same period of last year.

Given current economic conditions, this is a significant achievement, and I'm pleased to report that all of our business segments achieved higher year-over-year EBIT.

For the second quarter, TransForce adjusted net income was CAD37.8 million, or CAD0.38 a share fully diluted, up from CAD26 million, or CAD0.27 a share, last year.

Net income for the second quarter reached CAD34.1 million, or CAD0.34 a share fully diluted, versus CAD26.2 million, or CAD0.27 a share, in the same quarter of 2011. Free cash flow for the period totaled CAD58 million, or CAD0.61 per share. This is an important metric for TransForce because a strong free cash flow enables us to reimburse our debt and provide us with the leverage to pursue advantageous acquisition opportunities.

Last May, TransForce announced a normal course issuer bid to repurchase up to 10% of the public float of its convertible debentures. As of the end of June 2012, we had repurchased only CAD630,000. Earlier this morning, we amended these bids by entering into an automatic purchase plan, which will facilitate the repurchase.

We also announced another normal course issuer bid to repurchase up to 7 million common shares of TransForce, representing 9.2% of our public float. We believe that our shares do not properly reflect TransForce value. The bid is set to begin on August 2, 2012.

I'm also pleased to announce an agreement to increase our existing credit facility from CAD650 million to CAD800 million, subject to the signature of a formal agreement, which should take place in the next few days. The agreement would also provide more advantages, terms, and covenants for TransForce, which should result in annual savings of more than CAD3 million. The new facility expires in 2015 and can be further extended annually.

I will now review second-quarter results for each of our business segments. First, the Package and Courier segment. Our revenue, excluding fuel surcharge, was CAD263 million, compared to CAD203 million in the prior year, a 30% increase, which comes as a result of the Loomis acquisition.

This market continues to be highly competitive and essentially flat in volumes and pricing. Our EBIT in Package and Courier reached CAD20.8 million, or 7.1% of revenue, compared to CAD16.6 million, or 7.4% of revenue, in 2011. This segment's operating divisions have successfully improved their operating income and EBIT margin by implementing productivity improvements and several technological- and facility-related initiatives, which resulted in significant gains and improved financial results in the quarter.

LTL remained a challenging segment. Pricing and service overcapacity are continuing to be challenges. To address these issues, we've been aggressive in optimizing our operations and reducing capacity by consolidating resources between divisions. These efforts are now showing measurable results.

LTL revenue before fuel surcharge for the second quarter of 2012 reached CAD136 million, an increase of 34% over last year. Most of this increase is attributable to Quik X LTL division, which we acquired January 1 of this year.

Revenue from existing LTL operations increased small 1%. EBIT from the second quarter was CAD9 million, [0.2] up from CAD5.3 million from last year. Excluding Quik X, EBIT was still up 44% over last year, reaching CAD7.6 million, which reflects an initial success from the measures mentioned earlier.

In our truckload segment, revenue, excluding fuel surcharge, decreased by 1% to CAD136 million. Prices were stable, but lower customer demand has driven volume down.

However, rigorous cost-reduction efforts and asset rationalization have resulted in significant decreases in operating expense. Expenses for the material and services were greatly reduced as we adjusted to the volume level. Using independent contractors and third-party carriers also gave us greater flexibility, allowing us to react more quickly to variation in demand. These efforts led to a 22% increase in EBIT, from 12.1% in the second quarter of 2011 to 14.7% in second quarter of this year.

Services to the energy sector continued to show strong growth in the second quarter as revenue increased 56% to CAD109 million. Much of the revenue increase, though, is due to the acquisition of Miller. A decline in the Canadian activity was more than offset by increased activity in the US crane business and increased long-haul activity.

EBIT more than doubled, reaching CAD13.2 million, compared to CAD5.9 million last year.

We also announced a harmonized branding for our various energy services sector companies, which are now known as TForce Energy Services. We believe that joining these individual companies under a single unified brand will make it easier for us to further enhance and broaden our energy service offerings.

This move also reflects the reality that the strategic acquisitions that we've made in the sector have effectively created North America's largest and most resourceful rig-moving company.

Finally, revenue from other specialized services segment increased 11% in the second quarter to CAD93 million. The increase came from our logistics operating segments.

For the remainder of 2012, we anticipate that the economy will continue to be uncertain and that any growth in revenue will be slight. But we anticipate our operating earnings to be in line with our guidance.

Our business strategy remains the same. We're committed to proactively implementing measures to improve operating efficiency and asset utilization, while leveraging our density. TransForce will remain focused on its fundamental objective of optimizing the profitability of existing business and of the recent acquisitions.

As we continue to wisely manage our assets, capital will be increasingly deployed in initiatives that add to our collective expertise and that provide our operating companies with the best people and technology. This will allow TransForce to generate a superior return on its assets and to provide innovative value-added solutions to its growing North American customer base.

In so doing, we will also create further value for our shareholders.

So at this point, I'd like to please answer your questions you may have.

(Operator Instructions). Cameron Doerksen, National Bank Financial.

I guess just a couple questions for you. First on the energy services segment, you know, there was a big decline in Canada, obviously, more than offset by the US business. I'm just wondering if you can just give us what percentage of that segment's revenue is now in Canada? And what is the outlook, I guess, for the US business? Are you still seeing some strength in the recalling there?

Yes, well, first of all, the big decline we saw in Canada, in our Canadian operations, was Alberta where we had terrible weather in June. And also, the road band situation in April and May didn't allow us, really, to move any rigs is there. Okay, so that was a weather-related situation there in Canada.

On the US side, I mean, we see definitely a lot of activity still in the back end. Lots of activity in Texas, as well with -- down south. Around Denver, in our Greeley operations. So when we look at our revenue, it's still trending like our plan was.

There's lots of activity in the US right now. Through that on the dry well side, like our Pennsylvania terminal has really been slowed down big time. The other one that's slowed big time for us is up north in BC, the Fort Nelson thing there. So on the dry side, I mean, this has been slow, but on the oil side, the liquid well, I mean, we are very busy down there.

We just acquired the assets of Peak, okay, about three months ago, and I was looking at our numbers of June, okay, and it's really starting to show off. It's going to be highly profitable acquisition there. So, we're very confident that 2012 will be a very good year in the US.

The Canadian market, I mean, my guys are telling me that, hey, it's just a matter of time. We think that the fall, okay, is going to be much better, okay, so we'll have to wait and see.

Okay. And on the percentage of revenue now that's (multiple speakers) Canadian versus US?

Yes, our US-based revenue today is a little over 300 million, compared to a total revenue of about CAD500 million in the sector, but in there, okay, on the Canadian side, so the Canadian side is about CAD200 million. But in there, okay, there's more than the rig-moving activity, so there's lots -- there's about CAD80 million, okay, of rig-moving associated business in the CAD200 million.

Okay.

So for instance, our Westfreight business has nothing to do with rig moving. I mean, there it's really the oil sands where we have a truckload and an LTL operation out of Texas and Oklahoma, okay, feeding Edmonton north with the Fort MacMurray, as an example.

Okay, okay. Second question, I guess on the Loomis, you made some progress in Q2 relative to Q1. Is it still your expectation that we'll get this operation back to breakeven by the end of the year?

Oh, absolutely, absolutely, Cameron. I mean, we have to understand that Loomis, we haven't really done that much so far in terms of the operation. We haven't done really nothing, really.

We just got about 150 people out of the office and some terminals, okay, because we're just finished moving our IT platform in Toronto, so as soon as Loomis is on the TFI platform, then we can start making some improvements with productivity because then we're going to have the proper tools to manage the business. But I'm telling you, for sure Loomis, by the end of the year, it's not going to be negative cash flow.

And Dynamex, okay, on the other hand, we bought Dynamex, and the focus of Dynamex when we bought the company was grow sales volume, boom, boom, boom, but forget about bottom line. Our philosophy is different, so we're very happy with the results of Dynamex so far. The EBIT of the company has improved by about 40% since we bought the company. There's still a long way to go, but we're on the right track there.

Okay, good. And just on that note, maybe a final question from me just on the various initiatives you've got. You mentioned the IT on the Package and Courier, but you can maybe just update us on the overall IT integration process you've got at the other segments, and also on the terminal consolidation?

Yes. On the -- our plan is really on the LTL side as we picked one of our platforms, which is our TST Overland platform. And it's our plan that by the end of the year, our CF, which is based in Calgary, will be on this TST platform as a first step, and then we'll be working with the rest of our divisions, like Quik X and Kingsway. So Quik X and Kingsway are scheduled for 2013.

On the energy side, we've picked the ex Miller platform, so we're in the midst of doing that. Not big savings there because it's still -- it's small, not comparable to what we will see with P&C and LTL.

The one -- on the Package and Courier, so what we're going to be doing first is that we're moving our ATS, which we bought from Mike Andlauer. We're still running on Mike's system right now and we're paying him a fee, so -- by the latest, by the end of September, we'll be standing on the TFI platform. And then, we're moving ICS. And then, we're moving Loomis. So it's an ongoing process right now.

So no real change from where we were three months ago (multiple speakers)

No, no (multiple speakers).

It's on schedule?

It's on schedule, yes.

And on the terminal consolidation, where (multiple speakers) on the progress there?

Oh, absolutely. I mean, you'll see more action in Q3 and in Q4, okay, but definitely we've got lots of action there and it's -- we're on track. I mean, we're going to be down, the same business down 50 terminals within the next two or three years, no question about it.

Okay, great, that's excellent. That's all I had. Thanks very much.

Thank you, Cameron.

Walter Spracklin, RBC Capital Markets.

So, good result here. I just wanted to get a sense of if there's anything in the second quarter in any of the divisions where seasonality was at play for the margins that we would maybe expect those margins to come down because of that seasonality, and perhaps we could first start on Package and Courier. I know you've been getting some great progress with the integration, but I just noticed it was a very nice bump in EBITDA margins, looking at about -- from 9% to almost 12%. Is there any reason why that would come back down on a margin side or can we see that keep going?

No, no, because on the Package and Courier, really Q3 and Q4 are normally our best quarters. Q1 is the worst, but if you look at Canpar, for instance, as of August, August up to December is fantastic for those guys. The same thing with ATS, so those two guys, okay, no issues there. LTL, the same story. Q3 and Q4 for these guys are always the best quarter (multiple speakers)

The reason why -- I mean, that's excellent, and I'm just curious because I think in the last call you said that we would see single-digit EBITDA margins for your Package and Courier, but if you did 11.5% in the second quarter and are expecting it to continue, it looks like you're coming in better than what you expected.

Yes because I think that, like I said earlier to Cameron, our Dynamex team is really doing their -- they're working their plan, and their plan is probably a little bit faster than I anticipate, so I really congratulate the team there. They're doing a fantastic job.

That's great. That's excellent. Okay, sorry, I interrupted you. You were going onto LTL. You expect those margins, no seasonality there, either?

No, seasonality, it helps us in LTL for Q3 and Q4 normally, okay, and then truckload. I mean, truckload, we anticipate that there was a few situations in Quebec, for instance, like the Rio Tinto plant that was closed down for six, seven months because of a lockout. This is reopening now, so our truckload should be okay.

On the energy sector, I think that the fall on the Canadian operations should be much better than our Q2.

And then, on the other specialized services, like our waste, if you listen to Progressive, I'm sure you -- they've talked about the price of the commodities, okay, so this is a minus for us. I mean, it costs us just a little bit more than CAD0.5 million, but this will probably be the same thing in Q3 and Q4.

But what's helping us in our waste business is Moose Creek, as I said earlier. Our volume is growing. Marc and the team there at Matrec and our operation in Ontario are doing a fantastic job, and no, I see -- we'll make our plan there, Walter, (multiple speakers)

And on that waste side, can you talk about how much of the new capacity that you brought on has been now brought into this quarter, and how much more do you have yet to see actually fill in or sell that capacity?

Yes, what the guys are telling me right now, Walter, and when I look at the numbers, this landfill used to operate at 300,000 tons. Now we're running at 400,000 tons, as we speak now, and the target is to be closer to 500,000 tons by the end of the year. But the permit is 750,000 tons. So we're still a long way from the 750,000. But at least we went from 300,000 to 400,000.

And I understand there's a few municipalities in the area that are coming up to their -- the end of their useful life in terms of their landfill, and you have some opportunity there?

Absolutely, and this is why we have a new transfer station in Belleville, to be in the position to be competitive all the way to Oshawa.

So when I add up all this, it looks like -- even if you just do, on an EBITDA basis, the same as what you did in the second quarter for the third and fourth, you're going to come in probably through the top end of your CAD375 million to CAD400 million EBITDA guidance. Am I reading that right?

Yes. But don't forget, Walter, us, we're conservative.

Yes, understood, no problem there, okay.

And finally, on the NCIB, acquisitions are still a focus for you. Your debt level is modest, but acquisitions, certainly you would have to look at how you would finance those. Can you remind us or sort of update us on how you're approaching -- do you just see less opportunity for acquisitions and that's why you're starting to buy back stock? Just maybe give us some color there.

No, no, no. I'll tell you, Walter, I was looking at two different deals, and one, I had to say to the guys, your expectation is much too high. And the other one is a deal in the US where the private equity that stuck with the company is looking for a stupid guy to buy it, and I said I'll give you a little bit more than a dollar, and they think that they'll find somebody else.

So this is why on the M&A side, as I said, 2012 is not going to be a great year for us. I mean, I'm working on a deal that should close by the end of August at a very attractive price, but it's going to be a CAD25 million, CAD30 million deal and cash flow of about CAD6 million, CAD7 million, including CAD10 million of working capital. So it's going to be a very good deal for the shareholder.

But in the meantime, I think that our focus has always been, and I said it earlier in the year, that 2012 is we have to do the job with Loomis. We have to do the job with our LTL division. We have to focus on Dynamex, so this is why -- if I find a good deal at a good price, I'll buy it. But I'm not too busy right now because there is so many opportunity and it's a buyer's market, so why would I run and rush because I'm very busy delivering what we promised that we would be delivering.

So going back to the NCIB on the stock, if somebody wants to sell us TFI stock at CAD16, I'll buy it.

Yes, yes. No, all that makes sense, and again, Alain, great quarter. Thanks for the answers.

David Newman, Cormark Securities.

Good results. I just had a couple of questions. Obviously, we're looking at some of the macro trends and some of the indicators and the freight indices and whatnot, and I know you're unique because you've got a little bit of a -- the margin improvement story, et cetera, and the energy is a little bit different as well.

But just purely on the TL and LTL side, are you seeing anything out there that, where you seeing on a weekly basis right now, that things are softening at all? And how sticky would your margin improvement story be if the topline specifically on those sectors does contract organically?

What we see now, David, is that it's flat. And don't forget, this is July. So July, it's never a good indicator of what's going to happen in the fall.

Right.

But what we see in our truckload is that it's been really flat, and as a matter of fact, we're down 1%.

Right.

We think that the fall is going to be a little bit better because of the situation in Quebec where we have Rio Tinto with a lockout, we had [a white version] in Quebec City that is starting up again. We have a little bit of better hold in Ontario. So we think truckload should be okay, but flat.

LTL, I mean, it's a different story. What we see now is they're both the same thing. We were up 1%, which is nothing. We don't anticipate major improvement in pricing or volume. We think it's going to remain flat, what we're seeing now, but there's lots of opportunity to grow the business through acquisition. But we'll be probably very quiet this year, but that's going to be a 2013 thing, you know?

Okay.

So I think that -- I feel very confident. When I look at my month of July, what we've done so far, what we have in the pipeline, all these projects that we're working with Canpar and ATS and all these guys, what our US team is looking at right now on the energy sector with the Peak asset that we bought, there's -- even with a flat story topline, like I said, and I think that this is going to be the story as well, I'm very confident that we'll make the plan.

Okay, very good. And then, over on the Package and Courier side, there's been further management change at Purolator. What's your sense on it, and do you think there'll be a different approach to pricing? When DHL exited the US, the pricing went up significantly, and yet that didn't evolve in Canada to any degree.

No.

So what do you think now on the pricing front and on the Package and Courier side?

I think the change over there at the other company was a must. The approach of the old management team was volume, volume, volume.

I think what my guys are telling me is that they see that it doesn't make any sense. They're the leader in Canada. They're the largest one, and they should be more looking at profitability than volume, and I think that this is a change that we're going to see there.

Now, you have to understand that DHL was lost completely when they were running the US, and they were quite a large player. What us -- what we did is we took care of the DHL Canadian business, which were a -- some kind of a lowballer, even a little bit Dynamex, and now if the other guy, the competition smartens up, it should help. But right now, we don't see that. But we don't see any price stupidity like we saw maybe a year ago, so it's starting to change.

The problem is that it's the consumer that is still a little bit unsecured right now, I would say.

Right.

Not knowing where the economy is going, and you read the paper about Europe and everything that happens in the world, although the Canadian economy is not that bad, but it influences your US and consumer.

And God knows Canada Post needs the profitability.

Yes, well (multiple speakers)

Go ahead. (Multiple speakers). Sorry, go ahead, Alain.

I mean, this, we can't control what these guys are doing in Ottawa.

Yes.

But if you look at what the Dutch have done with UPS, I think it's fantastic. UPS is going to take over this company and they're going to do a fantastic job. I mean, they know how to run a company, these guys.

Right, exactly. Okay, and last one from me, just on energy, just to get a bit more granular on it, again, because it is -- obviously something we're hearing is rig counts and utilization and potential CapEx spend and all that. Are you seeing anything at all in your current metrics, like right now, that we are seeing [further] utilization of the rig counts or just the general volume and movement in the oil and gas space at all. I mean, obviously gas could have some upside here, but what are you seeing?

What we see right now, David, is that we're very busy in all aspects of our business, except for the dry well where we are at present right now in Pennsylvania and a little bit in Wyoming with Rock Springs.

The feeling we have when we talk to our customers, when we talk to the market there, when our sales people talk to the customers, is that there's been a change in the US. They want to drill -- they want to have a better control on their energy. They understand that Iraq, Iran, and all these guys over there, maybe it's best if we do it ourselves. Maybe it's best if we work with the Canadian or the Mexicans, and they're going to drill more. There is some potential in Texas, and that's the feeling we're getting.

Yes, and then, and again, I guess it's a case of a secular versus a cyclical change where they want more control over it. And you're basically in the Permian basin down in Texas, correct?

Right, right.

Very good, excellent. Thanks, Alan.

Ben Vendittelli, Laurentian Bank Securities.

Most of my questions have been answered. I just have a couple of small housekeeping questions. In terms of CapEx, 2012 and 2013, would you be able to give us some parameters there?

Yes, CapEx for -- net CapEx, this is after disposal.

Yes.

Okay, we're going to turn around the CAD60 million mark for both years because, again, we don't see any growth in volume in 2012.

And we haven't really started on our plan for 2013, but the way I feel today is that there's not going to be a lot of growth in 2013. We don't know yet, so it's going to be about the CAD60 million mark.

Don't forget that all the initiatives that we're doing with the LTL and the P&C, okay, it's reducing our need for CapEx, so right now our depreciation is about 3.3% of revenue. We anticipate that depreciation on the asset -- not the intangible, but the asset -- will be closer to 3% at one point.

And secondly, in terms of your tax rate, it was a little higher than expected in the quarter.

Yes, yes, yes, well.

And you explained it with the Ontario situation. Is that to be the new expectation going forward, in that 30% range?

Yes, well, what my tax guys have told me is that it's costing us CAD1 million, this Ontario thing there, and this is kind of a correction of the year to date. That's what the guys are telling me.

So I don't think that 30% is the reality for the future, but we have to make adjustments for the year to date based on the new plan that they have in Ontario, and that cost us CAD1 million in the quarter.

Damir Gunja, TD Newcrest Securities.

Likewise, most of my questions have been asked. Maybe looking out to 2013, Alain, can you just -- obviously, you can't give us guidance at this point, but just in general terms, can you talk about which businesses could maybe see some organic growth, how much more progress you can make on costs and efficiencies, and maybe a range of acquisition potential?

Well, to talk to you about the topline, Damir, for 2013, it's a little too early for me, but what I could tell you, though, is that with the same base business of 2012, which, let's say we're going to close the year at, I don't know, CAD3.2 billion, something like that, with an EBITDA, let's say, around, let's say, CAD390 million, I think that same base business will be in a position to improve the bottom line of the Company by probably CAD20 million in 2013, CAD20 million to CAD25 million based on all the different projects that we have ongoing now that will give results in 2013 and 2014 and et cetera, et cetera.

In terms of the M&A activity, I think that the P&C in the US with the same-day business, you're going to see some action there. You're going to probably see some action with the LTL on the Canadian side only. It's got nothing to do -- we're not going to go into the US markets with the LTL. No, thanks.

Probably not anything in the truckload. You'll see some action with the energy sector in probably a small deal this year, maybe a little bit more important next year. And on the waste side, I mean, we're always looking for small tuck-ins for Ontario/Quebec market where -- because on the waste side, we're just a regional player, we're an Ontario/Quebec player, and we'll remain a player like that.

So there may be a transaction in one of the waste companies in Quebec, and we're not going to buy that company, but if it's a major player that buys this company, there may be some assets that will have to go, and then we would show an interest in that.

So I think that our plan for 2012 is really clear. Our plan for 2013 will become clearer as soon as we understand better Q3, and so -- but I feel very confident that even with the topline, the same topline in 2013, there's room for us because of all the different initiatives that have been taken right now and the ones that will be taken in the next few months that will improve our bottom line by another CAD25 million. And no more CapEx, no more than what I just said that we will do.

Benoit Poirier, Desjardins Securities.

Good morning, Alain, and good quarter.

Thank you, Benoit. Good morning to you.

Just to come back on the previous question, when you talk about CAD25 million on the bottom line, could you maybe clarify? Is it on the EBITDA or on the net income?

It's on the -- well, the EBITDA, it's going to be the same as the net income, okay, or the EBIT because there's not going to be more DA, right, so it's CAD25 million on the EBITDA and CAD25 million on the EBIT.

Now the interest will go down next year, that's for sure. We have a better deal now, and on the tax, well, tax, we don't control the tax. So I cannot tell you on the tax. What I could tell you is that our EBIT, let's say our EBIT will improve between CAD20 million to CAD25 million next year, same revenue.

Okay, perfect. And just to come back on the CapEx question, what is the normalized level of the disposal we could expect in 2012, 2013, because when you look at last year, you were close to CAD65 million in the (multiple speakers)

Yes, yes, but that was special because we sold the terminal.

But you see, Benoit, today -- listen to that -- today I've got CAD75 million of assets on the real estate side that are up for sale. Because of all the consolidation that we've done, I've got CAD75 million. If I would sell everything that I've got today at book value, not at market, at book value, I would get CAD75 million back from our shareholder.

Now it's going to take me some time; it's not going to happen overnight, but all these actions that we took are releasing CAD75 million of asset in my book, my book value today, that I'm trying to sell. So I'm selling right now a small terminal, for instance, in Baie de Como. I'm selling a piece of land. I've got a deal to sell a piece of land in Quebec City. I'm selling another terminal in Quebec City.

So our real estate guys are really busy, and I'm saying to these guys, guys, we don't have 25 years to bring that CAD75 million in, but I expect that within the next three to five years, it's going to be done.

Okay, good color.

So this is just on the real estate, this is not the equipment. The equipment is normal.

Okay, perfect, and to come back on the margin, you did 9.2% in terms of EBIT margin. To me, it seems almost a record level. So is there any reason why we saw a big improvement versus last year? Is it only the consolidation or anything behind that?

No, it's just the cost, Benoit, because the pricing -- there's no improvement on pricing. I know that you guys read what has been saying in the US that this guy comes out with a 5% increase, this guy is looking for 6%, et cetera, et cetera.

But us, what we see us in Canada is that our pricing is stable. I don't know if it's because we're stupid versus the Americans, but our pricing here is stable. There's no pricing -- our volume is about the same, stable at best. Yes, the LTL was up a bit, truck load was down a bit, but basically we're flat.

So all the improvement you see, 50% comes from the existing business that we have, which we're working on improving them. The other 50% in the quarter comes from Miller and Quik X and Loomis -- nothing from Loomis, but you understand what I'm saying.

So it's just a -- and you'll see Q3 and Q4, the same trend, and then in 2013, it's going to be the same trend if we don't do any acquisition. But I mean, for sure in 2013, because 2012, I said early in the game is 2012, it's a year where we're going to be very busy delivering what we said that we would do. No excuse.

So this is why M&A, if it's a very good deal like this company in Texas, okay, yes, we're going to buy it. We're going to buy it at the end of August or September, at the latest, because it makes sense. The price is fair; it is reasonable. If a guy wants to sell me his company at 50% more than what I think it's valued, I say to the guy, keep it. Keep it. I mean, I'm patient.

And just to come back, you recently signed a very nice partnership with Hydro-Quebec for the conversion of methane.

Yes.

There's also the other one ongoing with Moose Creek.

Right.

So could you provide, maybe, more color about the potential revenue for each of these and maybe more color about the profitability, as I would not expect a lot of cost on that side?

No, there's no cost to us, Benoit. We've partnered with some good business people that do all the investment because they are the strategic partners that know that business. Us, we don't know the business, so we signed a deal with them.

They do all the investment, like Granby was about CAD10 million. And us, the only thing we get is a royalty.

Now, what my guys are telling me, what Marc is telling me is that once everything is up and running, both Moose Creek and Granby, okay, you're talking a -- probably something around CAD1 million to the bottom line.

Perfect, excellent. And in terms of the free cash flow guidance, you were previously guiding for CAD225 million, CAD250 million.

Yes.

But given the solid beat so far, is it fair to assume that it will trend like the EBITDA, so maybe (multiple speakers)

Topline, yes. At the top of the fork, yes.

Okay, okay, and maybe last question. On the pilot side, have you seen any shortage these days or any potential implication, either for the truckload LTL or maybe positive implication for the logistics business?

You mean -- what do you mean on the pilot side? Do you mean on the driver's side?

Yes, yes, on the driver's side.

Aha, because we don't have any planes yet.

On the driver's side, no issues there, Benoit. No issues. In the US, maybe, okay, but not in Canada. But it's going to come, it's -- for sure it's going to come, but not now.

Okay. So thanks for the time, Alain, and good quarter again.

(Operator Instructions). Jason Granger, BMO Capital Markets.

Looking -- just staying on track here with your Package and Courier business, if we look across the divisions, Canpar, ATS, Dynamex, Loomis, ICS, could you give us a sense of how much of your business there would be business to business versus business to consumer? I believe the majority is business to business, but just trying to get at sort of rough percentages between those two.

I don't have that number, Jason, but what I could tell you, though, is that you're absolutely right. Most of what we do, us, is B2B.

Yes. Now is B2C an area that you would like to make further inroads into, given some of the e-commerce potential, online shopping opportunities out there? UPS on their Q2 call was talking about most of the deceleration in the US in the B2B offset by a lot of growth in the B2C.

Yes, over there, those guys at UPS, they have a fantastic company.

And on the B2C, the big competition is the post office, so like USPS in the US, they have, what, a $5 billion deficit. They will have to make a ton of changes there, okay, and they have a plan to start making some changes there, which UPS and probably FedEx will benefit.

The Canadian situation is very different. The Canadian situation, we have guys in Ottawa that they don't seem to be too much in a hurry to start making some changes, so they are the big player right now with Puro and the Canada Post.

So if this business grows, okay, their volume grows with them. Us, we look at that and we say, you know what, we can't compete with Canada Post. It's very difficult because us, we have shareholders that tell me, listen, Alain, if you're going to invest a dollar, we want the return. Those guys in Ottawa, it's a little bit different philosophy.

So if they change their philosophy, then it may change our approach. But for now, okay, we're very busy trying to establish ourselves solid with the B2B. We still have a weak Loomis, lots to do with that company before we start looking at doing something different.

So what I said to Jim Houston, Jim, please, let's focus on our plan. Let's build a solid company with Loomis Canpar, and then we can start looking at different opportunity. But in the meantime, we're stuck with Canada Post, and the subsidiary, which is Puro. So B2B is really where our focus is right now.

Sure. No, that makes sense. Fair enough. And going over to Dynamex there, US versus Canada, could you break out what sort of growth rates you were seeing between the two regions?

We see more growth in the US than in Canada.

Our growth in Canada has been okay, but not as comparable as what we see in the US. We have better potential. Don't forget that in Canada, we're CAD190 million in Canada. We're CAD185 million; we'll be this year CAD190 million. And in the US, we're only CAD300 million and something, CAD305 million, so think about the size. The potential is way more on the US side than it can be on the Canadian side.

Our Canadian team is doing a fantastic job in terms of the costs, working on the costs, improving the margin, working with the suppliers, working with the line haul provider that took advantage of us like on the airline side. The same thing in the US, too, but there we could work on growing the topline much easier than in Canada because we're only just a little over CAD300 million in the US.

Sure, and I think last quarter, you were at high single-digit growth in the US, low single digit in Canada. Still about the same?

Yes, right. Yes.

Okay, and the growth that you're getting in the US, how much of that would relate to contract wins versus organic growth off existing business you already have?

I would say -- you know, we have a huge account. It's called IKEA.

Yes.

So IKEA is growing big time, right, so we're lucky that we're growing because of -- we're piggybacking on their growth.

Like in Montreal, for instance, probably their largest store in North America now will be in Montreal, so we're lucky we're growing with some of our customers. But we're also gaining new business, like this IBA business in the US, which is in nuclear medicine. The guys were telling me that last month, we were doing CAD1 million with those guys. So I said it, this is a CAD10 million to CAD12 million, so for one month we did CAD900,000, okay.

So we have some wins, but we're also lucky to have good customers where we could grow -- piggyback on their growth.

Sure, okay. And in Q1 there in Dynamex, you'd mentioned good progress on overhead reduction, but some of that being offset by more aggressive pricing that you were working on correcting. Have you gotten any traction starting to improve some of that pricing, or how is the pricing component looking?

Absolutely, absolutely. You have to understand, Walter -- not Walter, but Jason, that the philosophy of the management team there was grow topline and hope that the bottom line would follow.

Our philosophy is completely different. So we have to change the culture there, which we're doing, and it works very well. So absolutely, okay, our Q2 at Dynamex, I'm very happy with the direction we're going, with the management that we have there, the way that we're working on every file there, both Canada and the US. Hey, this is going to be a double-digit EBIT company pretty soon.

Remember when we bought that, those guys were a 3 to 4 EBIT? Today, we're doing a little bit better than 7, okay, and we're going to do more than 10. We have the people; we have the tools.

Okay, very good. Just switching gears here, last question, your use of owner operators to provide a growing proportion of your capacity, in the US we've been hearing reports from some of the logistics players that they are getting squeezed on margin somewhat, feeling the pinch of cost pressures from the capacity providers now. As you pointed out, that's certainly a different market. We don't have the same tightness in drivers and capacity and whatnot, but just trying to get a sense of how that's working or working for you or against you in Canada?

You have to understand one thing, Jason, is that what these guys are talking about is owner-ops that are working for truckload divisions --

Yes.

-- which is very different than the owner-ops that we have. Out of the 6,000 owner-ops that we have, the majority, I would say probably 85%, are attached to our Package and Courier business.

So these guys, they sleep at home every night. They have breakfast at their home every morning. They are with their family every evening, which is very different than a truckload guy that leaves on a Sunday afternoon for a week and he's back Friday afternoon. He sleeps in the truck, he takes a shower at the truck stop, he eats out of the microwave in the truck, so this is not an easy lifestyle.

So that is the big difference between our owner-op within TransForce and the owner-op that you guys are talking about in the US and like owner-ops that would work for contracts. That's tough because he doesn't have any parcel, right? He doesn't have the small guys working the city of Toronto. He's got the truckload guys, so that's not easy.

Yes, and I mean, you do use owner-operators and you've been increasing that --

Yes.

-- use in your truckload business as well, correct?

Yes, yes, yes.

Are you feeling a bit of a pinch there or is there something different?

No, no, no because don't forget, if you look at our topline, it's stable. It's (multiple speakers) so we're not running for volume, us. Us, we're running for profit, so this is why my guys, they call me and they say, oh, we need more trucks. No, no, no. We need better profitability first.

Okay, and I'm just trying to understand how you're able to keep the cost pressure down on your capacity providers for truckload when some of your competitors are not.

Maybe it's because, Jason, it's different market, too. What (multiple speakers) are talking about is the US. Us, we're in Canada.

It's -- although, I'm telling you, on the truckload side, it's not easy to maintain the owner-operator because you've got to pay these guys a fair price, and then you have to say no to a customer that wants to take advantage of you.

Yes, okay.

(Multiple speakers). So that's the philosophy of TransForce is if we don't have fair pricing from the customer and the customer tells us that there's somebody stupid that's going to do it for CAD0.05 on the dollar, well, give the business to this guy. I mean, us, we have to be fair with you, we have to be fair with the owner-operator, and we have to be fair with the shareholder that supports us.

Sure, okay. I appreciate the color, Alain. Thanks and good quarter.

Thank you, Jason.

Mr. Alain Bedard, there are no further questions at this time. Please continue.

Ladies and gentlemen, thank you for your interest in TransForce, and I look forward to joining you again following our third quarter to update you on our progress in different initiatives. So have a good day, all. Thank you.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.