TFI International Inc (TFII) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TransForce year-end and fourth quarter 2014 earnings 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 Tuesday, March 3, 2015.

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

Well, thank you, operator, and good morning, ladies and gentlemen.

Yesterday, after the market closed, we issued our news release concerning results for the fourth quarter and fiscal year ended December 31, 2014. Let me begin by providing you with an overview of the key performance indicators for the year and the fourth quarter, and then I will discuss the fourth quarter results of each of our operating segments in more depth.

I'm pleased with the substantial progress of TransForce made in 2014. We completed a number of significant acquisitions during the year. These additions to our network have greatly enhanced our service offering, extended our geographic reach throughout North America, and added more talent to our pool of expertise.

Total revenue for 2014 reached CAD3.7 billion, a 90% increase in 2013. EBIT grew to CAD275 million, which represents 8.4% of revenue before fuel surcharge, up from CAD209 million, or 7% -- 7.5% of revenue, in the previous year.

Adjusted net income was CAD176 million, or CAD1.75 per diluted share, up 43% over 2013. And free cash flow reached CAD321 million, equivalent to CAD3.24 a share, versus CAD223 million, or CAD2.41 per share, last year.

In the fourth quarter of 2014, total revenue reached CAD1.07 billion. This represents a 36% year-over-year increase, and was essentially due to the acquisition made over the past 12 months.

EBIT reached CAD79.9 million, up CAD36.4 million or 84% over last year. The increase was generated by a CAD15.4 million contribution from acquisition, and a substantial CAD21.7 million improvement from existing operations.

EBIT margin before fuel surcharge, climbed 230 basis points to 8.4%. EBIT rose in all segments, with the exception of waste management, where it remains stable. Adjusted net income, which excludes the after-tax effects of change and the fair value of derivatives, net foreign exchange gain or loss, and other items not in the normal course of business, more than doubled to CAD47.5 million, or CAD0.45 per diluted share, compared to CAD22.3 million, or CAD0.25 per diluted shares a year ago.

Higher cash flow from operating activity allows us to generate strong free cash flow of CAD93.5 million or CAD0.91 per share, a 60% increase over the prior period. For this free cash flow, we partially financed the acquisition of Contran and repurchased common share for cash conservation of [CAD]22.9 million.

I will now take you to a closer look at Q4 results for each business segment. In the P&C, revenue excluding fuel surcharge was CAD307 million, up 3% from last year. Most of this increase is due to the [enscenda] acquisition that we made in May of 2014.

EBIT rose 41% in the quarter of 2014, and EBIT margin before fuel surcharge increased to 8.7%, representing a 230 basis point increase compared to the same period in 2013. This strong performance comes largely from synergies and operating improvements generated by the consolidation of some Loomis and Canpar activities. We continue to execute our strategic initiatives to rigorously control costs and we are also making further inroads in new markets, especially in e-commerce.

In the LTL segment, revenue before fuel surcharge climbed to CAD202 million, a 48% increase over last year. The Clarke and Vitran acquisition primarily accounts for this boost in revenue. The dollar yield per ton was also up 5.8%, partly due to the appreciation of the US dollar.

EBIT in the LTL grew from CAD2.2 million in Q4 of 2013 to CAD14.8 million in Q4 of 2014. The recent acquisition contributed CAD4.1 million to this total, while existing LTL operations increased their EBIT by CAD8.5 million.

Turbo consolidation and closure generated significant savings for us. EBIT margin before fuel surcharge for the fourth quarter was CAD7.3, up sharply from CAD1.6 last year.

The truckload segment had a solid quarter with revenue, excluding fuel surcharge, reaching CAD321 million, versus CAD159 million in 2013. The increase is largely due to the Transport America and Contran acquisition. Excluding acquisition, year-over-year revenue was up 3.3%, on stable volume and higher yields.

EBIT in truckload grew from CAD13.4 million to CAD28.8 million. Acquisition contributed CAD11.3 million, to this increase. The EBIT margin before fuel surcharge reached 9%, up 50 basis points compared to the same quarter in the previous fiscal year.

Existing truckload business improved their EBIT margin substantially from 8.5% in Q4 of 2013, to 10.7% in Q4 of 2014. But this was largely offset by noncash amortization charge of intangible assets from the acquired company. We are confident that truckload operating margin will continue to improve.

Total revenue in the waste management segment increased 35%, to CAD56 million. Much of this growth is attributable to the Veolia Solid Waste Canada acquisition. Also contributing to the revenue increase was the Lafleche Environmental Complex in Ontario, where revenue were higher, and the landfill and composting operation.

EBIT in this segment was flat at CAD12.2 million, while the EBIT margin declined from 29.3% to 21.7%, due to low margin from the Veolia business and less favorable service mix. In regards to Veolia, we are rapidly implementing a strategic plan to improve the margins.

I will now share with you the outlook for the new fiscal year. Following a very active year on the acquisition front in 2014, using our very solid free cash flow to reimburse debt will be a central priority in 2015. We also remain committed to employing excess capital on initiative and programs that will generate a superior return on asset, and we will continue to return cash to shareholder, as per TransForce stated policy.

Solid economic growth in the US should benefit our operation over there. We anticipate that a weaker Canadian dollar should drive a modest recovery in the country's manufacturing sector, which should in turn benefit our Canadian based truckload and LTL segment. In addition, we have achieved substantial gains in our P&C and LTL operation through the consolidation of operating, administrative, and IT platform and we expect more significant gains to come.

In the truckload sector, we are carefully managing supply and maximizing the utilization of existing assets in our division, and are focused on improving the return on capital employed. In the waste management sector, our priority is to improve margin, and we expect further benefits from an investment made at the Lafleche Environmental Complex. The acquisition of the past year will also enhance our revenue stream and we'll continue to extract the greatest synergies and operating efficiency possible in each segment.

In short, we are staying the course. Where our stated objectives are continuously improving efficiency, further [rationalization] of our assets by strictly aligning supply with market demand, rigorously controlling our costs, and executing on our highly disciplined acquisition strategy.

So at this time, I will be pleased to answer any questions. So, operator?

(Operator Instructions)

Your first question comes from the line of Mona Nazir from Laurentian Bank. Your line is open.

Good morning, Alain.

Good morning, Mona.

Just a couple of questions for me. So on the less-than-truckload side, I think we expected growth to be negative but it was flat year-over-year. Prices were stable last quarter, but they're now up significantly 5.8%, and that is enough to offset volume.

Just wondering, how do we think about this going forward? Do you think that overall LTL or organic growth could be flat or even up this year? Or still thinking negative, overall?

Well, you see, Mona, what is helping us in the LTL right now is the fact that the Canadian dollar is at $0.80, and we have a lot of traffic that comes from the US that is based in US dollars. So the fact that we are converting those US dollars and Canadian dollar is helping us, okay? So for us, the appreciation of the Canadian dollar is really a tailwind for our LTL operation.

So this is what is helping us, because if you look at the Canadian base business that we have with the volume that we have today, there is no growth, and I don't anticipate any growth in 2015 in our LTL domestic business. So really, what is helping us right now, on the revenue side, is really the appreciation of the US dollar versus the Canadian dollar.

Okay. And then secondly, on the packaging courier side, I know it was a challenging period for your peer UPS, and they stated it was a complex operating environment in regard to e-commerce. I am just wondering if you could speak to how you're handling the growth, and where are you given the rapid growth? I know you have been expanding in new markets, Chicago, New York, and speak to how this is progressing?

You see, the way UPS service the e-commerce is very different than how we service the e-commerce ourselves in the US. I mean UPS is the best company in the world, but it operates on the network system, on a line-all P&D operation, like we do in Canada with our next day service like Canpar and Loomis.

The problem that they are facing is that the e-commerce, the way we service us is through dedicated operation and off the customer's dock, using our last mile operation, and we are running that with independent contractors. So, it is a very different model versus the UPS or the FedEx model or the USPS model in the US. So, it is in the earliest stage. Right now, the way we are doing it ourselves, that this is a very, very small portion of the market right now.

Now, is this share of that market using a last mile guy like us going to grow? Probably. How much? We don't really know. Because we are still in the very early stage of that.

Okay. Perfect.

And just lastly here for me, there are a number of ways to reduce debt here. On the last call, you spoke about using cash flow to pay it down, which is a possibility, number one. Secondly, you spoke about spinning off the truckload and/or waste management division. And lastly, even though you said you may not go this route, but there is always equity financing or some financing way.

I'm just wondering, there are a number of options and maybe you should just go through your thought process on each, and the timing of a spinoff, if it is still in the plan?

Well, first of all, I think a part of our 2015 plan, as I said, is that we want to bring about CAD400 million to CAD600 million of debt, long-term let's say like Mullen did. Mullen did a great job on that. So they brought in a 10- or 11-year debt, and this is what we are working on right now. So that is one thing.

In terms of the equity, this is completely out of the question. I mean, with our strong free cash flow, and in our plan, one thing that is never part of our plan is all the excess real estate asset that we have that we are going to be selling. And this is going to be between CAD25 million and CAD50 million again this year. Already, we are in discussion with about CAD25 million to CAD30 million of assets -- real estate assets, that will be sold probably within six months.

Now, that being said, in terms of the waste management, what we want to do with the waste management is really, okay, before -- well, we got a few options. One would be just to sell it. Outright sale. This is something that we don't want to do. What we would like to do is take what we have, and build with something, combine that with something, somebody, other companies, and build a great Canadian waste management company. So, this is what we are working on.

But that would be done outside of TFI. Because TFI is a transportation company. And we were successful in buying waste management assets from [SUEZ] in 2005, we turned that into a very successful story. And we want to build on that. We don't want to sell it. But it is difficult to build a waste management company within a transportation company, where you're mixing a 10% EBIT transport company with a 22%, 23% EBIT waste management company. So it is not the same valuation.

Stability of waste management is different than transportation. You got more cyclicality in transportation than in waste. So this has got to be done outside of TFI and this is something I'm working on right now.

Now in terms of the truckload, the truckload, that's a different story. I mean truckload, our vision is simple, is we -- there is a need, okay, in North America, for a strong North American truckload company. So if you look in Canada, I mean there is us, and there is not that many players. I mean, now with the acquisition of Contrans in our base business, I mean we are a CAD1.3 billion, CAD1.4 billion Canadian truckload company. With a mix of 55% specialty and 45% regular van. This is a fantastic company.

But we would like to combine that with our America, okay, that we bought last summer, and grow into the US through acquisition, okay, in the specialty truckload sector. Because that is -- if you look at all of the number one, the best companies in the US, truckload operators, they are all in the van business. Nobody talks about the flatbed. Nobody talks really about the bulk guys. So we believe that with the expertise that we have within TFI now, and even more now that we have Contrans, we could do that.

Now, are we going to do that within TFI or outside this? I don't know yet.

Okay. Thank you.

You're welcome.

Your next question comes from the line of Walter Spracklin from RBC. Your line is open.

Thanks very much. Good morning, Alain.

Good morning, Walter.

So I would like to go back to just your broad guidance. I know you reiterated your guidance in your press release. I just wanted to confirm you are still targeting CAD550 million EBITDA for 2015? Is that still on track?

Yes, that is still on track. I mean, what we are saying is it will be between CAD540 million and CAD560 million, depending on all kinds of factors. We got the US dollar. We got the oil.

We got the slowdown in Alberta. We have, you know, all kinds of issues. But we still believe, after two months of 2015, with a very difficult month of February, weather-wise, we still believe that this is attainable.

So, let's call it CAD140 million increase. You have always based that on zero growth. Is that still zero organic growth?

Yes.

And obviously, the rest, therefore, coming from the acquisitions that you made last year.

True.

Plus any integration. How would you break those two up, the CAD140 million, how much of that will be integration savings, and how much of that will be acquisition?

Well, if you look at the CAD406 million that we came out this year, and if you add all of the acquisition, let's say Contrans for about 11 months and then you add America for six months, and you add Vitran for a few months, I mean that is going to take the CAD406 million to about CAD500 million. Okay?

All right.

Now, so to say that from CAD500 million, we are going to CAD550 million or CAD540 million or CAD560 million, this is really, everything is about cost. Everything is about -- we are going to get a little bit of a tailwind on the truckload sector. We believe that, okay? How much? We don't really know. But we believe that the truckload, the market is going to help us.

But in the LTL, or in the P&C business -- a little bit maybe on the P&C, the market will help us, because now, you know, the number one player in Canada is acting differently than -- acts differently than for the last 10 years. LTL, we are not going to get any help from the market, that's for sure, except maybe from the Canadian dollar. This is all about cost, okay?

And what we said is that all of the measure that we put in place, in the P&C, and in the LTL, and to a certain degree in our truckload operation, this is going to improve our profitability by about 10%. So from CAD500 million goes to about CAD540 million to CAD550 million.

Right. And presumably, that is mostly going to come in package and courier, a little bit I guess in LTL, is that right?

Yes, well, it is going to be spread out. Because don't forget, waste, I mean if you look at our numbers, waste, we should improve by CAD4 million to CAD5 million. Okay, it is not a lot when you are targeting CAD50 million. But waste is going to improve a little bit. So CAD5 million, CAD6 million should come from the waste.

The P&C, we are shooting for 100 basis points. So 100 basis points on a [1.2, 1.3], you are talking CAD10 million to CAD14 million there on the P&C. The LTL, we are looking at something similar.

You know, the acquisition of Contrans and the fact that now our team, okay, are working closely with the Contrans team, we said that this should bring us probably an additional CAD5 million to CAD10 million over the course of this year. The SG&A within the Company, we're tweaking every cost that we can do, okay?

Right. So if I add those up real quick, though, P&C, CAD10 million to CAD14 million, LTL CAD10 million to CAD14 million, that's CAD20 million to CAD28 million. And then CAD5 million from waste.

CAD5 million in the waste.

And CAD5 million to CAD10 million in Contrans, we're looking at CAD30 million. Okay, yes. No, that all makes sense. Perfect.

It is going to be a tough job, Walter. It is not a done deal. The way we are at TFI is, we are conservative but we work hard, and we put a target that you got to work for it.

For sure. And after that is gone in 2015, how much left is in the cost story after that? How much more --?

I would say probably not a lot in the truckload sector. Once we integrated the Contrans and the America and all of that, maybe a few millions. Maybe I would say probably after 50 basis points on the truckload side. So maybe another CAD10 million on the truckload side.

On the parcel side, I still believe that we have to be over double digit EBIT. So if you look at what we have done this year, and even if we improve by 100 basis points, we are still far from a 10% EBIT. And we are going to be, you know, close to 9%, so in my mind, in 2016 and 2017, we still have to improve by 100 basis points in that business. And really, our same day operation in the US or in Canada, is where we need a lot of improvement there.

And you know, the acquisition of Velocity, it was a difficult situation for us. I mean, so we lost a little bit of our focus. So now our guys are all refocused. And also I mean we've got new business coming in.

So this is why, to me, P&C, LTL, that's the big question. I mean if the market is not helping us on the cost side, we are getting close to the maximum we could do with what we have. So, let's say we improve by 100 basis points there again this year, it is going to be very difficult, if the market is not helping us.

Right now, good thing though is that the US dollar is helping us. And every forecast that I am looking at is telling me that the Canadian dollar will be very cheap for 2015 and 2016.

Right. Last question here then, is, on the premise that you're guiding diligently and conservatively at 0% growth for next year. What could emerge and what indications, if any, have you seen that might signal a potential increase in -- or improvement in the overall trucking sector fundamentals? And you know, I was a little encouraged by the 5.8% yield, but you mentioned that was mainly translation gains, so perhaps the strength there, or that as an early indicator, perhaps, is not quite the early indicator we were hoping for.

Is there any signs of -- any bright signs in the distance that you are seeing in any, either truckload, LTL, or parcel, that suggests that the underlying fundamentals that are you currently guiding us at 0% might be a little bit better than that into 2015 or into 2016?

I think the truckload, Walter, we are probably a little bit conservative there. I think that the market will help us on the volume side and the truckload sector.

I mean with the US economy, that would seem to be improving, now we are questioning, because we are looking at January and February, I mean they had a very difficult winter there as well on the East Coast. So we are not too sure yet. But let's say that the US economy keeps on improving, truckload will definitely benefit from growth in volume.

And that will be a leading indicator for you other -- (multiple speakers)

On the P&C side, on the Canadian next day service that we have with Loomis/Canpar, small. The volume is small volume. I don't see anything major there in 2015. Maybe in 2016.

On the same day last mile, there, we have more -- we are more happy when we look at the situation. We got lots of good stuff in the pipeline. Even in the US and in Canada. And so there, I mean, we are a little bit more optimistic in terms of volume. And LTL, I'm not optimistic at all. I mean I'm looking at this Canadian market, and it is shrinking.

So you know, what is going to help us, well, the good thing is the US dollar, like we said earlier, but in terms of pricing, there is too much, still too much capacity in the Canadian LTL market. So the good thing is that Murray bought Gardewine, that is fantastic, great for the market, but there is more that needs to be done. There is more that needs to be done, mostly in Ontario and Quebec.

Last housekeeping question. How much EBITDA came from the Contrans acquisition in the fourth quarter?

Very small, Walter. Very small. Because don't forget we took it on in mid November, and you got two bad weeks, the last two weeks of December are (expletive) weeks, so I don't remember exactly, but I know that on the EBIT side, we lost money with Contrans. But it's small.

Okay. All right. Perfect.

Those are my questions, thanks very much, Alain.

Pleasure.

Your next question comes from the line of Damir Gunja from TD Securities.

Good morning, Alain.

Good morning, Damir.

Just on the capital side, I was just curious are there any divestitures beyond the real estate that are you thinking about?

No. I mean not at all, Damir. You see, one thing we have to understand is that every year, okay, we will divest, now with Contrans and with America and the rest of our operation, about CAD50 million of trucks and trailers and all of that. This is in the normal course of the business.

But what I am saying is that, so if my CapEx is scheduled to be CAD150 million to CAD160 million, because now with the US dollar appreciation, so maybe my CAD150 million is going to be closer to CAD160 million, but my disposal is going to be on the equipment only. In the neighborhood of CAD45 million to CAD60 million. Because we never know, okay? That's the normal course of business.

Above that, what I am saying is that we will have between CAD25 million to CAD50 million of excess real estate. For example, okay, we are selling one of our terminals in Prince Rupert, we are in final discussion with a buyer. We are selling two of our buildings that have been mostly empty for five years, next to the GM plant, in Ontario. That is another CAD12 million, CAD13 million.

So these are all excess assets that we are selling. And that's going to bring in CAD25 million to CAD50 million of cash over and above the normal stuff.

Now, you say is that sustainable? Sure, it is. Because in 2016, once we do that CAD25 million to CAD50 million in 2016, we are going to do another CAD25 million to CAD50 million, because as we speak, Damir, and we got between CAD125 million to CAD150 million of excess real estate. You know, on the Contrans deal, we are selling a building of CAD11 million in Edmonton, as we speak.

And maybe just a second one then, I guess on the acquisition side. How are you thinking about acquisitions for the coming year? And does the higher US dollar give you a little bit of pause in the US market, or is that not really a factor?

It is not a really factor, the US dollar, but there is going to be a pause in 2015 on M&A for TFI, because 2015 is going to be a year of strategic moves, you know? Like I explained to Mona, is I got to do something with the waste, okay?

I am sitting on the fence right now. I've got a great asset. A lot of people want to buy it. But I say a lot, not a lot, but a few people want to buy the asset, okay? So I got to do something.

It is either I am going to sell it like I did, okay, when I bought CF and I sold Milne & Craighead because I couldn't grow it, or I am going to grow it but outside of TFI. So that is, it is not going to be really an M&A activity, but it is going to be a strategic move, okay, to create more value for the TFI shareholder.

By growing it outside TFI, do you mean like a joint venture type arrangement?

Yes, it could be a joint venture. Or it could be, you know, a combination with somebody else. I mean, I'm looking at all kinds of strategic moves.

Okay, thanks very much.

Okay. You're welcome.

Your next question comes from the line of Umayr Allem from National Bank Financial. Your line is open.

Good morning. I'm filling in for Cam today.

Good morning.

Although there is not much focus on it, could you highlight some of the things that impacted your other segment in terms of revenue and EBIT?

Okay, the other segment is very simple. In there, what we have is really our logistic operation, and our rig-moving business. The rig-moving business is -- the only rig-moving business we still have is in the US, and this is slowing down, as we speak. The price of oil is at $50 a barrel.

So we have a plan for 2015 of about $100 million in revenue, US, and 2% or 3% profit, bottom line. This is probably an optimistic figure as we speak right now. And this is a business that our team, they are working very hard to keep costs down.

And our logistics, I mean that is something that we don't talk a lot about, but that is a growing business. I mean with the Contrans acquisition, we added a nice logistics business that Contrans has, Cornerstone Logistics which is about CAD60 million. That is going to beef up that sector, there. And organically, there is some growth there.

And we are very happy with, you know, we have a new Clarke North America division that was added last year. We are trying to build a kind of a low brokerage division, with our Transport America franchise in the US. I mean there's lots of good stuff that may happen there.

All right. Thanks. And another question, on the waste, it was effected in Q4 by product mix. So, how would you go about improving the mix in that segment to get the margins up?

Well, you see, when we talk about product mix, is the fact that Veolia, its product mix is very different than ours. They don't have any landfill, this don't have any compost facility. So, the product mix of waste management within TFI is changed permanently with this acquisition.

So really, what is going to be the driver though of our increased profit is the fact that we have to reduce costs at the Veolia type of operation, and that is going to take us maybe 6 to 12 months to do within the year 2015. And that is going to bring up our EBIT closer to 22% to 23%.

But we will never be back to where we were, because Viola's got no landfill. It's got a different mix. That's what we're saying when we talk about the mix.

Okay. And just last question for me, is there anything you will do differently in looking for your next CFO?

Well, you know, CFO is -- it is a tough job within TFI. So it takes lots of talent. And listen, I mean we have lots of candidates that want to take over that job, so we will see what we will do next, in the next few months.

All right. Thanks. That's it for me.

You're welcome.

Your next question comes from the line of Fadi Chamoun from BMO Capital Markets.

Hi, Alain. This is Devon, pinch hitting for Fadi this morning. How are you doing?

Doing well. How you are you doing? How about you, Devon?

Good, thanks. Wanted to circle back on the rollout of the same day services with your major e-tailing customers in the US, I believe many of these services are introduced at little or no cost to the customer for a trial period.

Yes.

And as this incentive period rolls off, just wondering how demand has trended in these markets? Also how does the margin profile of this business compare before and after this trial period?

You see, Devon, what we do for customers in the US on the e-commerce, it is the same margin as we have for any of our business. I mean, we don't operate a line of business within let's say a Dynamex US operation as a loss leader, or in the fate that maybe it is going to be good in three years. We don't do that. So every e-commerce account that we have, are generating a normal profit, like is acceptable to us.

Now, that being said, the experience that we are going through right now, is that I mean it is -- it has been really good in some markets, like New York, like L.A., like San Francisco, but it has been slow in other markets like Chicago, Boston, and DC. So I mean we are just piggy-back on our customers, so if they are successful, we will be successful. Right now, they are having a tough time.

Now, we have the largest retailer in the world, okay, which we started in LA with those guys late last year, but you know, these guys are brick and mortar guys, and the e-commerce, it is not their business. They are not an Amazon company, okay? Amazon was built with this e-commerce mentality. Those bricks and mortar guys were built with bricks and mortar guys' mentality, and they are trying to come up with a solution.

And these are big guys, and it has not been easy. They have tested their product with the number one transport company in the world and it was not a success. Now we are discussing with them, we open up one market. We were supposed run three markets, but we are doing only one. Hopefully, I mean we will get, you know, to more than one market. But it is -- we are still in the early stage of this business. Very early.

Now, is this going to work? I think so. Because it works in England. It works in Japan. It works in China. But so far, I mean it is still very, very small sector of the e-commerce business that is serviced by a last mile guy.

That's helpful. So just sticking with the e-commerce, so many of the larger next day couriers in the US are -- they are investing big sums of money in their IT systems aimed at reducing redelivery costs in their B2C business, you know, looking at improved delivery scheduling, leveraging their networks at pickup locations.

How does Dynamex manage its potential drain on margins, and can you remind us, within Dynamex, how much of your revenue is from, like, B2C?

First of all, the e-commerce in the US has always been service from day one, by USPS, FedEx, or UPS, okay? And they have always been charging big dollars for the service. And they have been growing. The problem is that it is peak and valley. So, if you remember in Q4 of 2013, there was big issues, service wasn't there, lots of complaints, and last year, Q4 of 2014, they had invested tons of money, and they came out with a negative result. I mean the largest guy came out with some negative results.

So now they are saying -- well, maybe, we will have to have a peak charge, or this, or that. And so I don't know where these guys are going. But what I can tell you is that in high density markets, like New York, like L.A., San Francisco, Chicago, Miami, in all these high density markets, the same day last mile solution is way more efficient and much cheaper. Because we don't touch the product as many times as a next day guy. It is just a different way of doing it.

So that's what I believe is some of our future, but it is not in our numbers at all today. And we are not going to grow the business just to practice delivery and not make any money. I'm telling you that.

Okay. Thanks Alain. That was helpful.

Okay. You're welcome.

(Operator Instructions)

Your next question comes from the line of Maxim Sytchev from Dundee Capital Markets. Your line is open.

Thank you. Good morning, Alain.

Good morning, Maxim.

Just a quick question in relation to leverage. I mean obviously in the short term, you are trying to pay down debt. But what should be sort of the magic net debt-to-EBITDA when you are going to think about M&A, which I assume is more of a 2016 event?

Well, we have got to bring that down under the 2.5, Maxim to start thinking about going back to leverage. This is, to us, right now we are at 3-point something. 3.2, 3.3, whatever it is. And it is not going to come down by a lot in Q1, as we all know. It is coming down by about CAD50 million in Q2, okay? So it is still going to be too high. And it is really in Q3 and Q4.

So this is why my real focus in 2015, is not going to be buying big companies, like we did in 2014 and investing a bit over CAD1 billion. You know, if I do that, then it is because it is such a great transaction that then I will have to resort to equity. Which I don't want to do. So this is why we are focusing more in 2015 in some strategic move, like I have discussed on the waste, and maybe to a certain level on the truckload side.

And then sort of thinking about the -- having that permanent debt on the balance sheet, what are your initial thoughts in terms of how you would think about structuring this?

Well, you see, what we'd like to do is, like Murray did, a group of insurance companies that want to lend us money for the long term, and interest rates are still low in Canada and they will probably stay low for at least another year because the economy is not doing that well.

There is some discussion that maybe in the US side, in the later parts of 2015, they will start moving up the rates, so this is why I said to our VP of Finance -- I said guys, let's get organized now. The problem that we face is that, until we know if we are going through a strategic move in 2015, then I don't want to put on long-term debt, and then the guy says to me, well, yes but you can sell this, or you can take this away from TFI and combine that with somebody else. So, you understand what I'm saying?

Yes. Absolutely. And then maybe just one last thing.

In terms of -- I mean obviously with diesel pricing being lower, which is a tailwind for you guys but at the same time, a negative offset on rig moving, can you quantify sort of, I don't know, a cent move on diesel in terms if there is any material impact on EPS or it just gets muddied up?

No, the fact that price of oil is lower, it is not really directing -- effecting our operation, except like you said on the rig move, which is a slowing down that activity. But really, with the customer, I mean it is really a pass-through.

And the only good benefit that I see is that now the consumer has got more money in his pocket. And it will probably help him reduce his debt, and then maybe at one point start, you know, consuming a little bit more than what they are doing now, in Canada, I'm talking about.

In the US, I think, I'm in the US most of my time, and I see the way people are acting there, the shopping center, and the restaurant, it is already, we are feeling that it is already -- it is a new economy in the US. They are back on their feet. And we see that the salaries are improving. You saw the announcement about Walmart. And another major chain announced that they have to improve salary there. So it is a different feeling in the US.

We are not getting that feeling yet in Canada. But I am convinced that it is just a matter of time. It is going to come. Probably not in 2015. Hopefully in 2016.

And what are your thoughts in relation to the Alberta slowdown spillover on the rest of the business? How do you think about it?

It is slowing down. Oh yes, no question about that. It is slowing down. I see that.

The good thing, though, is that we are not in the rig moving business anymore. But I see slowing down in our LTL business. Truckload is still not really affected. Because most of our truckload is on the oil sand operation there.

But yes, we are feeling the pinch, and slowly it is slowing down in Alberta. In Saskatchewan too.

Actually talking about sort of oil levered assets, any change of mind in relation to rig moving assets? What's the update there?

The update is simple is, that we came out with a plan, with about CAD100 million in revenue, and making like we did last year, 3 points or 4 points bottom line. But I'm telling you Maxim, after two months, we are not there. And this is why we took fast action.

I mean, we operate in Colorado. We operate in Texas and in Louisiana. And we also had an operation in PA. So I said to my guys -- forget about PA. We will go back to PA when we can make money. We can't make money in PA, so we shut down PA at the end of February. And we are monitoring that all the time.

And I am not going to bleed any cash with an operation. Like I said to Devon, I mean we're not in the business of practicing delivery or practicing rig removing and losing money at it.

I guess if you're not seeing material improvements over the next six months, would you consider strategic alternatives for this thing?

Well to sell it, it is out of the question. I mean nobody is going to buy it. There are tons of people that want to sell. So no, what we will do, probably Maxim, is we are just going to keep whatever we are making money at, okay. So we have a nice operation in Colorado, where we have always made money. We have a great operation in Louisiana, and it is a tough market in Louisiana, but we have a great operation there. We have always made money.

So we will keep the operation that are financially -- so that they can benefit and make money. And the rest we will just shut them down and park the assets and wait for the market to come back.

That's very helpful. Thank you very much.

You're welcome.

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

Well, thank you, operator, and thank you very much for joining us today on our call. So I look forward to speaking with you again following our first quarter.

So, have a great day. Thank you all.

Ladies and gentlemen, this concludes the conference call for today.

Thank you for participating. Please disconnect your lines.