TFI International Inc (TFII) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TransForce first quarter 2015 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 now like to remind everyone that this conference call is being recorded on Thursday, April 23, 2015.

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

Well, thank you, operator, and good morning, ladies and gentlemen. Our 2015 first quarter results press release was issued yesterday afternoon. I'll begin the call by providing you with a brief overview of key performance highlights of the quarter and then I will discuss the results of each operating segments.

We had several challenges in the first quarter of 2015, notably very harsh winter condition on the East Coast and lower oil prices which impacted business activity in the oil patch. Even so, we had a solid quarter with growth and profitability, driven by a major acquisition made last year, efficiency improvements, and the favorable effect of currency variation.

Total revenue was CAD 1.3 billion, up 34% over the first quarter of 2014. Before fuel surcharge, the increase was 36%.

EBIT was CAD 45 million, up 35% over last year, and represented 4.9% of revenue, about the same as the prior period. I'm happy to report that EBIT rose in every segment except for Waste Management, where it remained stable, and in Other Services, where lower rig moving activity and less favorable pricing in the US had a negative impact.

Adjusted net income reach CAD 29.3 million, or CAD 0.28 per diluted shares, compared to CAD 24 million or CAD 0.24 per diluted shares a year ago.

Our cash flow from operating activity continued to rise and allowed us to generate strong free cash flow of CAD 40.5 million, or CAD 0.40 a share, a 51% increase over the prior period. This was used mainly to repay long-term debt by a net amount of CAD 35.3 million. Debt reimbursement is a key priority this year after last year's major acquisitions.

I will now provide you with a more detailed view of each business segment.

Our Package and Courier revenue rose before fuel surcharge was -- revenue was CAD 287 million, up 4% from last year. Most of this increase is due to the Ensenda acquisition made in May of 2014.

EBIT increased by 14% in the first quarter of 2015, and EBIT margin before fuel surcharge increased to 5.1%, up from 4.7% in the previous year. This improvement reflects right-sizing initiatives in the US, synergies at several operating divisions and our stringent and ongoing cost control efforts. We achieved these results despite a tough Canadian retail market in Q1. The work we've done in developing new opportunities, particularly in the e-commerce sector, has helped us mitigate the softness in these other markets.

In the LTL segment, revenue before fuel surcharge rose 23% to CAD 183 million, due mainly to the Vitran acquisition. Although tonnage was down, the dollar yield per ton rose 3.7%, in large part because of the appreciation of the US dollar.

EBIT in the LTL decreased by CAD 1.4 million year over year because of a CAD 3.8 million gain on disposal was recorded in Q1 of last year. Existing LTL operations increased our EBIT by CAD 1.9 million before the gain on disposition. I would point out that the first quarter results in LTL are generally lower because of the seasonality of operations. The terminal consolidation and closure made last year are now generating significant savings and allow us to more quickly adjust operating costs to align with higher volumes -- with volumes, I mean.

The truckload segment continued to perform well. In Q1, revenue before fuel surcharge reached CAD 364 million, up from CAD 165 million in 2014. The increase is basically attributable to the Transport America and Contrans acquisition. Excluding the acquisition, revenue decreased by 6% because of lower volumes. However, operating expense of existing operations was down 8% year over year reflecting a significant improvement in efficiency.

EBIT in our truckload grew from CAD 11 million to CAD 27.2 million, an increase of 147%. EBIT margin was at 7.5%, up 90 basis points over last year, but existing operations at -- a 180 basis point improvement. Remember that businesses acquired in 2014 have a higher intangible amortization charge. While this reality will dilute the EBIT margin somewhat, we are nonetheless confident that the margins will improve with rigorous management and a continued focus on bringing even greater efficiency to our operations.

In the waste management segment total revenue increased by 23% to CAD 43 million. The increase comes as a result of the Veolia Solid acquisition, as well as from organic growth attributable to the landfill operation at the Lafleche Environmental Complex in Ontario. EBIT in this segment was flat year over year at CAD 6.7 million. Margins were tempered somewhat by the acquisition and by a less favorable product mix. Initiatives are well underway to optimize the Veolia operations and we'll start to see some benefit in the coming quarters.

And finally, in regards to the logistics and other service segment, revenue fell by CAD 3.6 million year over year, mainly because of the US rig-moving activity where revenue dropped by 16%. EBIT was down CAD 5.4 million compared to the first quarter of 2004 (sic, see Quarterly Report, "2014"), essentially because EBIT in the rig-moving service was negative CAD 6.2 million. We have put an action plan in place to offset this slowdown and have already closed three of our terminals since the beginning of the year. Other downsizing are underway.

While looking ahead, we anticipate that the US economy will continue to perform well and that a weaker Canadian dollar should help the manufacturing sector in Canada. As a result, we continue to expect to achieve total revenue of about CAD 4.5 billion this year with a basic EPS coming in the range of CAD 1.85 to CAD 2.00 per share.

Our company-wide philosophy is grounded in the principal of decentralization. We make sure that operating segment has the tools, technology and decision-making powers it needs to provide industry-leading service and solutions to maximize return on capital and to make the absolute best use of assets. With these operational fundamentals in place, we have the ability to continue building shareholder value.

At this moment I will be pleased to answer any questions. So please, operator.

Thank you. (Operator instructions). Mona Nazir, Laurentian Bank.

Good morning, Alain.

Good morning, Mona.

Just going to my first question, we did see some positive trends in Q2, Q3 and Q4 last year, pricing and volume side on the truckload and packaging-courier segments. I'm just wondering, of the negative organic growth in the legacy business in Q1, how much of that do you think was directly attributable to harsh weather? So if we took winter variable out of the equation, do you think inorganic growth was more or less flat or where would it have been?

I think, Mona, there was really -- if you look at our P&C business in Canada in our next-day services, I mean we have just a small growth. Now, the big effect of this very difficult month of February, and to a certain degree the month of March, we have a very late spring, okay? So if you look at our retail business with our customers, I mean we've been affected not because it's minus 25 degrees outside, because of the fact that nobody shows up in the store so they don't sell a lot.

If you look at the retailers, I mean in Canada, they have a very, very difficult Q1. I mean you have to think about Target closing down in Canada. I mean Target was one of our major accounts in the retailing side. I mean other franchises on the retail sector were affected by some bankruptcy. So retail sector in Canada is suffering big because of weather-related issue. Spring is late and we're facing with very small growth on the volume, on the same-day, last-mile side.

If you exclude volume that we got rid of over the last six months on the Velocity, like one major account that we had where we dished out about CAD 9 million on a yearly basis, the rest of our business on the same day, last mile in the US is growing and we have a lot of good accounts that are coming onboard. For instance, we're just opening up with a major e-retailer. I mean the Tampa in Florida market, we're opening up with these guys. New York City pretty soon.

So, you will see some organic growth in the US on the same day, last mile. The P&C next-day service that we have in Canada, there, probably a little bit our ICS division is showing some organic growth. Our Loomis, I mean they have some good prospects. But in terms of growing this market right now, it's still a very difficult thing to do.

Now, the beauty, though, that what we're seeing now more and more in the P&C next-day service is the leader in the Canadian market is approaching the market in a different way since they signed a new deal with the airline provider Cargojet. I mean we see a better future in terms of trying to get a little bit better pricing. Because for last six years on that P&C next-day service in Canada, I mean we had a very, very difficult time to get better yields, okay? So it's always been a game, for the last four, five, six years of improving just on improving operations and shedding costs.

Okay, perfect. And just looking at the last 16-month period for you and all of the acquisitions, I'm just wondering if you could speak to how that integration is going? Where are you seeing some good growth and strong margins and where do you think you have to work a little bit more to integrate some of these businesses?

Well, you see, if you look at our P&C business, the integration of Canpar/Loomis and all the different moves that we've done so far in Quebec are very, very interesting. I mean we have a major move that's going to take place in Ontario pretty soon, in the month of August, okay? We're just waiting for equipment to improve our technology. So our P&C with Loomis/Canpar, I'm very happy with what's going on over there.

If you look at Contrans, I mean we just bought Contrans a few months ago. And Contrans is really a fantastic company, okay? It's lean and mean and -- yes, they were a little bit behind plan themselves in Q1 because their flatbed business was affected by a late spring. Their Alberta operation has been slowed down because of -- we know what's going on in Alberta. I mean the price of oil down to CAD 50, it affects volumes.

But the integration of Contrans, it's really like a done deal for us. Really, what we're trying to do with the acquisition of Contrans is have to work together with the family, the Contrans. So this is how, by eliminating some moves and working closer between the Contrans team and the team of TFI prior to the acquisition, the existing team, I mean that's how we're going to get the market to improve. As an example, we just won a major contract for compost for the city of Toronto. I mean we're going to start that in June. That's 47,000 tons. And this is going to go to our Lafleche Environmental Complex. Now, who's going to do the hauling? Well, Layla's going to do the hauling, okay? So this is great news for Layla, great news for our Matrec division. So integration, I'm really happy.

Now, Clarke and Vitran, the other two LTL companies that we bought last year, I mean they're doing well. Except -- I mean everybody knows what happened in Q1 with the railways. I mean CP was on strike for one day and CN has a possibility of strike. Major derailment. I mean that affects our customers and that affects us. So there's a cost to that. I mean if you look at the railways coming out with their numbers, their numbers are great. Okay? Fantastic for them. But me, my cost is going through the roof when I have a situation like that where I have customers saying, you know what? I'm afraid of this strike so I'm going to ship over the road. So that affected us. But in terms of the integration, I mean Clarke and Vitran and our Quik X offering, I mean we're very happy with what's going on over there.

Okay, perfect. And just lastly from me before I step back in queue, I know you announced Davis Transportation Services acquisition this week. I'm just wondering if you could go over the rationale? Is it because--.

No, it's not us. It's not us, Mona.

It's not you?

Nope.

Sorry.

No. No.

Kevin Chiang, CIBC.

Hey, Alain. Thanks for taking my call here. Maybe just first off more of an accounting question and just some more granularity on the guidance. So it looks like you're starting to back out amortization for intangibles in your adjusted EPS. I know you've made some acquisitions that are amortization heavy. Just trying to get a sense of what the rationale for suggestion of moving forward is. And if you could provide an update on how you see EBITDA and free cash flow guiding through the rest of 2015 that would be helpful.

Yes. Well, you see, what we've done, Kevin, is very simple. What we're saying is that depreciation of intangible in 2015 for us is going to be around CAD 50 million. So that's a non-cash event. And we're just saying like others, I mean if you look at WSP and others, working with KPMG, we said, you know what? Let's -- I mean everybody can understand that this is really PS, but we have to take depreciation on the intangibles. It's CAD 50 million this year so it's about CAD 0.50 based on the 102 million of shares. So it's just an information that is different than what we used to do.

Now, in terms of EBITDA, yes, we're a little bit behind plan. I mean we're CAD 8 million behind plan in our Q1, okay? But I mean, if I look at my waste business, I'm behind plan CAD 2 million, but that is just because of late spring. If I look at Contrans, we're behind plan a little bit, around CAD 2 million again, because we had a tough winter and our customers like our drywall supplier, I mean those guys have been delayed big time.

So to me, Contrans is going to catch up, our waste is going to catch up. Our P&C was affected a little bit in Q1 with our same-day, last-mile operation in Canada, but this -- we're back on track with that. So, this is why I feel very good about the CAD 550 million in EBITDA. And I mean, in terms of the cash, we're absolutely there. I mean definitely our goal is to beat the CAD 325 million.

Now, if you look at my disposal of assets in Q1, it was just equipment. I didn't sell any real estate. But you'll be surprised to see how much real estate we'll be selling in Q2. I mean we have major transaction. That's going to close in Q2 and that's going to boost again even more our free cash flow, right? So we feel good about what we said.

That's very helpful. And just to clarify, the CAD 1.85 to CAD 2.00 in EPS, I presume that includes the add back of the adjustments you just mentioned on the amortization, just to clarify it.

Um-hmm.

Okay, perfect. And then just on the rig moving, good to see you're starting to right-size those assets early here given how soft the market is.

Yes.

Can you quantify? Can you remind me again what your exposure is to rig movement from both maybe a revenue and EBITDA perspective?

Yes.

And is there more to be done here outside of the three terminals being closed?

You see, if you look at last year's, Kevin, we did a little over $100 million US in the rig moving business and our profit was small, CAD 5 million or CAD 6 million or CAD 7 million. I don't remember exactly, but minimal. Now, we ended up in Q1 -- and Jay, the guy that runs the operation, he's a very optimistic guy. And he says, yes, I mean what is that, CAD 50? But we're hopeful that the small guys would die and etc., etc., but it didn't turn out like that. So, we lost a fortune in Q1.

So, we shut down PA; Pennsylvania. So we let go all the people. We're in the midst of selling all the assets, okay? And we're not going to lose a dollar on selling those assets, which is not too bad considering the (expletive) market that we are going through right now. And the reason being is that the assets that we have are top quality, top maintenance. So, we're going to fetch probably CAD 4 million or CAD 5 million on the PA side.

Now, we also shut down our [Rifle] operation and our Kilgore in Texas. So really, the game plan right now is let's focus on minimal terminals, like we still have Eunice, we still have Odessa, we still have Greeley, we still have -- well, In North Dakota. I forget the name of the city, but in North Dakota we're still there. And we say, guys, if we have to downsize the revenue down to about CAD 50 million or CAD 60 million, fine. Okay? But we can't afford to lose money. So really, we had a bad Q1. And according to Jay, and I think that he is realistic. I mean we believe that we will probably close the year with a small loss or probably, at best, a breakeven. I don't see volume on drilling activity increasing. I mean we all know what's going on with the price of oil. It went down to CAD 50. Now it's back up to CAD 55 or something like that, CAD 56. I mean this is not going to rock the market and bring back all those drillers. I mean they have lots of wells still even not in operation that have been drilled. So, it's going to be a quiet year for us, but I don't want to see any red no more of this operation.

Right.

Now, in total assets, our rig-moving business after the PA disposal, we're still going to be at around CAD 35 million to CAD 40 million of assets still that don't produce any cash flow or profit. So this is why -- we'll keep an eye on that and we're following that very closely.

Perfect. And maybe just when you think about this division strategically, it had some issues a few years ago as well. You right-sized it then. Is this still something that's core to you or is this something that--.

No.

You would look to divest of fully so you're totally out of the rig-moving business say in the next -- in the foreseeable future?

Well, one thing is for sure, Kevin. I mean it's a business that I don't really like because it's too cyclical. I mean you make a fortune in the good years. If you go back in 2012, I mean we did about 275 in revenue with a 25% EBITDA margin and 15% to 16% profit. That was great. But now, it's a (expletive) business. I mean it's terrible. So, it's too cyclical for me and for sure we don't like the cyclicality of that business. And also, it's very capital intensive, right?

Right.

So this is why -- I mean we shut down the Canadian operation because we knew that there was no future in Canada.

Right.

We knew that there was nothing that we could do. This market, Alberta, is a (expletive) market for us. Now, we thought that the US, with about 2,000 rigs we could do good. The problem is we never anticipated oil to go down to CAD 50 just like that. So hindsight, maybe I should have shut down Canada and the US, but I would never anticipate to go down to CAD 50.

So to answer your question, it's not core for us. We're in the business and we're going to keep an eye on it. And Jay knows that, listen, I mean we can't survive a negative cash flow operation. Within TFI, I mean it doesn't work, right?

Right. And maybe just lastly from me, just to get an update on your thoughts or where you're at in terms of spinning out some of your other assets or discussions you're having. And I guess you've highlighted in the past waste and TL. Any update there? And I'll get back in the queue. Thank you very much.

Yes. Well really -- the priority, Kevin, is really the waste. I mean we made a small acquisition with the Veolia asset. I mean they don't have any landfills so this is why their EBIT will never be as high as the EBIT of the pre-acquisition Matrec. We're in discussion with a lot of people right now. We have a few things on the go, but definitely I'm working on the file of the waste.

On the truckload side, right now with that's going on in the US and the limited time that I've got because I really put my priority, number one, in making sure that we make the plan. This is priority number one for me, making sure that we reduce our debt in 2015, making sure that we generate the cash flow. This is priority number one. Priority number two is the waste.

Right. That's very helpful. As always, thank you for your honesty.

Yes. Well, thank you, Kevin. Thank you.

Jason Seidl, Cowen.

Alain, how are you this morning?

Hey, I'm not too bad. How about your, Jason?

Hanging in there. It's transport earnings season so you just try to keep your head above water.

Yes.

A couple quick questions. Can you talk a little bit about the Canadian industrial side? Are you starting to see a little bit of a benefit from the FX adjustment with the US dollar in terms of manufacturing activity up there?

We haven't seen that so far, Jason, but we believe, talking to my guys, I've talked to the customers, etc., etc., we believe that probably that should start showing up in Q3 and Q4. Because don't forget, if you look at the dollar, US dollar appreciation, it's been really, really important the last few months of 2014 coming into 2015, but there's always a lag. Okay? There's always six months, nine months of lag. And when I talk to my guys, they are really feeling good that our customers in Canada will start moving more of their products into the US, but we haven't seen that yet.

And if this does occur, how should we start thinking about LTL pricing, because I know up in Canada it's really lagged the US counterparts. I mean should we expect that to start turning around?

No, I don't think so, Jason. I mean the Canadian LTL market is really a very, very difficult business right now. I mean we have too much capacity and we have very, very poor pricing. I looked at what's going on in the US where you look at a Saia or a [NoD] or these guys that show a 6% pricing improvement year over year, I mean for us this is like a dream. It's been six years that we're like the slaves trying to survive. So no, I don't anticipate that.

Now, on the intermodal LTL, there there's limited players in that field compared to the over-the-road guys. So maybe in that sector down the road we'll be in a better position to get a fair pricing, but it's not the situation today.

Now, the (inaudible) of our LTL over the road is that we got a CAD 3 million benefit in Q1 because of the US dollar appreciation, because we do a lot of transmodal shipments with our partner Estes.

Right.

So that helped us in Q1 and that should help us for the rest of the year. And the rest of the year in our LTL over the road, I mean we shut down three terminals in Q1. After this is done, now, we have a next step that's going to take effect probably in May. We also have another step that will take effect probably late in the summer. So, we're still working on adapting our capacity, adapting our network to a very depressed LTL market. Over the intermodal, LTL on the intermodal, I've got a little bit better confidence because it's a cheaper mode to ship, okay? Service is a service for the rail. If they are 50% on time they're doing well. And us, we have to live with that. And we have to work with the customer and have them understand that you wanted a cheaper price. I mean fine, but the service is not the same. If you want service and guaranteed on-time delivery, it's got to be on the road and it's more money. So, it should help us in 2015, this new dollars, Canadian dollars versus US.

Okay. Let me jump to the truckload operation, specifically in the US. A lot of carriers have announced their intentions, or have already put them through, rate increases for their truck drivers again here in 2016.

Yes.

What are the plans at TCAM?

The same, Jason. I mean our focus at TCAM has always been to be in the top 90 percentile of salary to our drivers, because the worst thing is turnover. I mean turnover costs you a fortune. And the focus when I talk to our guys at the America is let's focus on retaining the drivers we've got so we don't have to chase new drivers. And so in order to retain these guys, let's make sure that they understand that our package is very, very competitive and is top, top payment that you could get as a truck driver.

Are you still looking for the same mix between company and owner-operator going forward or are you trying to still get more into OOs?

We're trying. We're trying. But so far, Jason, we have not been very successful. I mean, if you look at America, we've got 1,500 trucks on the road and not even 10% of that are owner-ops. So, it's not the same mix. If you look at our Canadian mix, I mean we're way better than that in Canada. So this is why our capital intensity of our truckload division in the US is way higher than our capital intensity in Canada.

Is there something that you guys are going to be doing to the OO pay package? I guess--.

Yes. Yes.

Outsize compared to company driver?

Absolutely. I said to Scott, I mean, Scott, let's make sure that we have an attractive package because it's way more flexible to have an OO, an owner-operator, than having your own trucks. So for sure that's an area of focus of ours. But I'm very happy with the result that we have in Q1 with America. I mean the guys, they did a great job and it's not an easy market. Well, nothing is easy in transportation, but the guys did a great job in Q1.

Okay. Fantastic. Well, listen, I don't want to hog up too much time. I'll get to the back of the line. Thanks for the time, again, Alain.

Okay. It's a pleasure, Jason. Have a great day.

You, too.

Thank you.

Walter Spracklin, RBC Capital Markets.

Thanks very much. This is [Emily Tullis] in for Walter. Just had a couple questions on your waste segment. I know Veolia and mix has impacted margins. What sort of your line of sight to the improvement and where do you think they can get back up to going forward?

That's a tough question. That's a tough question. But if you look at the mix of Veolia, because they don't have any landfills, they have only collection, and in some areas also they have poor contracts with some municipalities. So we believe that Veolia, with about CAD 40 million should bring at least 8%, 10% EBIT contribution, which is not the reality today because of their mix.

Okay.

And so that's going to bring our average down because, prior to the Veolia acquisition, with our mix we were running closer to a 25% EBIT margin. So Veolia to me, between 10%, maybe 12%, 13% EBIT contribution of that acquisition. Now, they have a great division in Blainville, Quebec that doesn't fit really Veolia. So that division, which is small, is going to be moved out of Matrec pretty soon and into our specialty truckload division because this is not really anything to do with landfill or collection. It's more about contaminated soils, which we do a lot within our Kingsway specialty truckload division or in the Contrans group specialty truckload division.

Okay, great. And just slipping over to the volume side of the equation, I know they're soft currently. Where do you see them trending going forward? Do you see any sort of pick up as we head into spring?

Are you talking all over or just--?

On the waste side. On the waste side, sorry.

On the waste side. Waste, I mean volume on (inaudible) were light in Q1 because we had a late spring. I mean already we see the volume coming in in April. So I'm sure if you look at all the Canadian operations, I mean when the other, my competitors will come out with their numbers, I'm sure you'll see the same thing.

Now, the other thing that affected us at Matrec in Q1 is low commodity prices for paper, for plastic and all that. So that also had a small effect on our profitability in Q1, although recycling is not big at Matrec, I mean but there was also a negative impact of the commodity prices on our recycling operation.

But the third, the volume in our landfill, this is just a matter of time. I mean it's just because we were coming into a very cold March, okay? And even April is still not the best, but we're starting to see some volume coming into our landfill so we feel pretty good. And I was saying earlier, I mean we just won a major contract with the city of Toronto for 47,000 ton of compost, which just the tipping fees are CAD 115 a ton landed in Moose Creek, so this a great business for us and it starts in June. So Matrec feels very, very good with what's happening over there.

Okay, great. That's all for me. Thanks, Alain.

Thank you. Have a great day.

Cameron Doerksen, National Bank Financial.

Yes, good morning.

Good morning, Cameron.

I just want to I guess get another bit of a clarification on the EPS guidance because when you put that out in December, the CAD 1.85 to CAD 2.00, I mean you weren't calculating the adjusted EPS at that time with -- excluding the amortization of intangibles. And now you've maintained the same number but there's a sizeable positive impact I guess from excluding that. So I mean how should I look at this? I mean is this I guess a -- is your outlook, at least on the earnings side, worse than what it was in December or at I looking that wrong?

No. No, no, no. Maybe is my mistake, Cameron. Maybe I didn't explain it properly. In my mind, the CAD 1.85 to CAD 2.00, what we said, is the same as what we said three months ago. That hasn't changed. It is the same thing with the EBITDA. We said CAD 550 million three months ago and it's still CAD 550 million today.

Right.

Now, I remember the question earlier, does that reflect your new policy? I think it's Kevin that asked me the question. So maybe I made a mistake there. We haven't changed anything, Cameron. So we're still forecasting for 2015 the same thing as we were forecasting three months ago.

Okay. So you mentioned your expectation for 2015 on the amortization of around CAD 50 million, but if I look at Q1 it looks like, at least on an after-tax basis, it was just a little under CAD 8 million. So is it going to change by quarter? I mean I would think--.

No.

That it would -- it should be basically sort of at that run rate through the year. Is that--?

Yes. So when I say CAD 50 million for the intangible depreciation, Cameron, this is before taxes.

Right. Okay, okay.

Okay?

Okay, got it. Just I guess a couple of questions on the business itself. You talked a bit about the pricing in Package and Courier in Canada and that -- it sounds like Purolator is a little more rational now. They put in a rate increase at the beginning of the year. I'm just wondering if you can comment, I mean it's still relatively early in the year, but are you seeing actual pricing improvement or increases from Purolator? Has that kind of stuck?

Yes.

Is that the case?

Yes. Yes. I think that the P&C next-day service in Canada finally -- okay, the leader in the market because of his new deal with Cargojet and because of his new leadership, I think these guys want to make money. And in our world this is just good news because really, for the first time, we're able to talk to customers that we can't do it no more. It's got to change. And we need a little bit more money. I mean the inflation, we have to pay our drivers, our people better every year and we can't do that if it's -- it's becoming a nightmare. So all the improvements to the bottom line over the last five, six years on our next-day P&C comes from the consolidation between Loomis and Canpar and working on the costs and working on the productivity, etc., etc. But now, I think that finally in 2015 -- now it's not going to be a lot, but finally we're starting to make some moves in the right direction because the leader understands that things have to change, too, right?

Yes. Okay. And just maybe a couple of questions on volume outlook. And one of the areas you've cited is Western Canada. I guess it's fairly obvious things are weaker out there. Is there any way to kind of quantify what percentage of your business that would be affected by a weakening overall market in Western Canada, and I guess maybe Alberta specifically?

Well, you see, if you look at TFI, I mean we're about a 75% to 80% company that operates East of the Mississippi, right?

Yes.

But, I mean Alberta is very important us in terms of profitability and in terms of the yields, etc., etc. So we've always done well. But if I look at my LTL operations, we're down volume-wise 10%, 15% in Alberta. If I look at my pipe storage, which has always been a great business, I mean we're down 20%, 25% there. So for sure Alberta and the oil patch of Texas, I mean we've been affected.

So, what is that going to mean for us for the year 2015? It's still early because we have some good divisions that are still doing fine. Talking to my guys, they are confident that we'll be able to have some kind of a -- maybe not the greatest year in Alberta that we had, but something that will still be attractive for our shareholders. I mean, that is really the -- if you want to talk about a spot where we're a little weak, it's really everything that relates to the energy because of that oil price that dropped like a rock without anybody really knowing or anticipating a move like that.

Right, yes.

But even with that, I mean talking to my guys, we're still confident that our target is reachable.

Okay. Maybe just a final one for me, just on transborder. I mean I think this is a market that seems like it's pretty strong. You mentioned earlier that you thought it would be--.

Yes.

Picking up more towards the back half of the year, but--.

Right.

What can you talk about on the pricing side? I would think that the US carriers raising their rates is helping you as well on--.

Yes.

Transported volumes.

Yes, yes. Absolutely, Cameron. I mean, we feel very, very good about the truckload for 2015. I mean, yes, we were down in volume in Q1, mostly because of lower activity on the East Coast. But I mean, we believe that this is coming back and had a lot to do with the weather. And I look at the profitability of our truckload, our existing truckload in Q1, we feel very good. I mean oil price is down. That helps the truckload because the truckload fuel is very important to the equation. And the dollar is also going to help us. So, we feel that there is -- we're going to beat the plan. I'm convinced.

Okay, good. That's all for me. Thanks very much.

Okay, Cameron. Have a great day.

Benoit Poirier, Desjardins Capital Markets.

Hi, Alain. This is Charles filling in for Benoit.

Good morning, Charles.

Good morning. Just the first question, regarding your CFO search, can you maybe provide an update on what's going on right now? And also if your timeline -- what is your timeline you have in mind about the potential announcement?

The CFO will come from the family, will come from the inside of TFI. I mean I have not been very successful when I'm going outside. I mean I was very disappointed with the person we had before. So, this is why I change completely my approach, is this new CFO of TFI will come from our family. It will come from people that have been in the business for a long time. In terms of the timeline, I would say probably within -- it's going to be before publishing July's results, our Q2 results. This should be resolved probably in the next few weeks, yes.

Okay, very good color. And we noticed that you haven't referred to any share buyback during the quarter. Could you maybe comment about your strategy on that front, to know if you would intend to perform some going forward or if you prefer to wait to maybe increase your financial flexibility?

Well, it's all a question of pricing and we feel very good with the situation where we're going, okay? And it's all about price. So, when I see my stock going under CAD 29, I'm very -- I like to buy when the stock is under CAD 29 myself, right? So you're going to say, well, how you going to do that? I mean you've got CAD 1.6 billion of debt. How you going to do that? Well, we have a lot of assets that will be sold within the next few months. That's number one.

Number two is we feel pretty good about the cash flow that we'll generate. And number three is I think that we have something going on in our waste sector that will be very positive for the future of our stock. So, if I see a weakness, for sure we're going to be able to look out and trying to bring back as much as possible shares into our treasury. We don't like to issue equity and we're -- believe me, we're not going to be issuing equally within the next 12 months, that's for sure. Our free cash flow is going to be huge. And like I said, it's going to be used primarily to reduce our debt, but if we see weakness in our stock price we'll be aggressive.

Very good color on that. Thanks, Alain. Just a follow-up. You mentioned that e-commerce helps you to offset some of the weakness in P&C. Could you maybe provide more color about the opportunities you see in that sector going forward and maybe how sizable could they be in terms of quantity in the future?

Well, you see, the e-commerce using the last-mile guy like us is something that is really new. It's something that it's very, very at the beginning of probably something that could be great for us. To give you an example, the largest e-commerce guy, we're doing his last mile right now in Vancouver and in Toronto and we're in discussion with them for Montreal and Ottawa. We just opened up for them the Tampa and New York is coming in soon.

So, how big is that going to be? I mean what we know so far is that we are doing e-commerce last mile right now for about CAD 50 million to CAD 65 million today. Small. How much is that going to be by the end of 2015? It could be CAD 100 million.

Now, the difficult in e-commerce is that a lot of these retailers today, if you exclude the Amazon guys, which that's how they were born. But if you exclude this guy, the rest are still trying to find a solution, okay? If you talk like the big retailers, the largest retailer in the world and the one that closed down in Canada that's strong in the US, all these guys are just working with us in trying to find an approach to the market. These guys, they've built their business on brick and mortars, whereas the other guy built his business on e-commerce and internet, right? So, this is -- we're in a transition phase. It started small in 2014. It's going to improve in 2015. And always the question is, yes, but Alain, I mean is your margins going to suffer because of that? No way. I mean if we have to suffer in the margin we'll just leave that to somebody else. We're not in the business of practicing delivery, we're in the business of making money. Right?

Yes.

So, it could be a very interesting opportunity, but it's still in the early days.

Perfect. Really good color on that. Thanks for that, Alain.

And maybe just the last one, maybe an accounting question. Can you maybe quantify the benefits you got from FX in the first quarter on your EPS?

CAD 5 million. CAD 5 million was the tool benefit for us on the FX. Net of the CapEx. Because when I say CAD 5 million, it's about CAD 3 million in LTL and about CAD 2 million in my truckload sector, right? Now, when I say -- and a little bit in the P&C. So, when I say CAD 5 million, this is -- CAD 5 million is the right number, but it's not the real number because all the CapEx now are done in US dollars. So, yes, I have a gain on my revenue and my profit of CAD 5 million, but all the CapEx that I'm doing in Q1 are costing me 20% more because everything is done in US dollars, right? So, there's also a negative effect. So how much is that negative effect? I would probably say about CAD 1 million in the quarter, maybe CAD 1.5 million. So really, the net benefit to us in Q1 is about CAD 3 million, CAD 3.5 million.

Okay, perfect. Perfect. Thanks for the time, Alain.

Pleasure.

Turan Quettawala, Scotiabank.

Yes, good morning, Alain.

Good morning, Turan.

I guess my first question, maybe I'll just go back to that accounting question that you've already been asked a couple of times. But in mid-December when you provided your guidance, you said EBITDA was going to be CAD 540 million to CAD 560 million--.

Yes.

And earnings were CAD 1.85 to CAD 2.00, right? And you're still -- I know you said that those are both true, but I guess I'm trying to understand, once it's changing the amortization then contemplated back in December or -- so then that gives you another CAD 50 million, right, on earnings?

Well, if you want, but this is just one way of looking at it. What we're saying is that if you exclude -- because some of the other businesses are excluding that because it's -- for some investors really you don't take care of that. But like I said earlier, really our plan did not change. What we said in December is what we still are saying today.

Okay. Well, I'm just trying to -- given numbers just on -- when you look at the EBITDA -- and I understand the cash flow impact, right, and I understand it's non-cash, but I'm just trying to understand if the EBITDA is not changing and the earnings are not changing, then where is that -- like the EPS has to go up, right, if you're adding CAD 50 million more?

Yes. Yes, so maybe what we should have said, Turan, is that CAD 1.85 to CAD 2.00 exclude the benefit or that CAD 50 million of intangible.

Okay, that's fair. Okay, that makes--.

Okay?

More -- okay, perfect. That's helpful.

So in order to correct the mistake that we said, is go back to what we said in December. EBITDA doesn't change, okay? The EBIT doesn't change. Nothing changes. The fact that now we added intangible depreciation to our EPS is just a -- it doesn't change anything. I mean it's just a presentation thing.

Okay, that's helpful. Thank you. I guess then moving forward, the other question that I had was on the P&C business. And I know you've been working quite hard to restructure that and having sort of taking out a lot of the non-profitable businesses. When I look at the margins over the last few years, they really haven't gone up that much. There's been a bit of improvement for sure. And I know there's been a bunch of acquisitions in there as well. Could you maybe just explain that disconnect a little bit? Like, why aren't your margins going up more? And also, in terms of the margin improvement, you've talked about that double-digit margin. When should we expect that?

Yes. Well first of all, we have to look at the next-day service that we have in Canada. Our next-day service in Canada has improved every month, year over year, from the day that we bought Loomis until now. Where we got a bad operation is our same day, last mile, both in the US and in Canada, okay? So when we bought that business we were running at 2% to 3% EBIT when we bought that in 2011. So, we've improved that in the US and in Canada and we were very close to about 8 points, okay?

Then I made a mistake. I bought Velocity. And I doubled up when I bought TDS in Canada. So, that really killed me on my same-day, last-mile operation, both US and Canada. So from an 8%, before these acquisitions, I went down to the (expletive) with more revenue but no profit (inaudible) and a lot of costs. So, I (expletive) the business out in the US, same thing in Canada, but I'm still stuck with the cost. So, if you look at my same-day, last-mile business today, both US and Canada, I'm still below where I was after all the improvement we made before the acquisition of Velocity and TDS in Canada. Okay?

Okay.

So when you look at the global profitability, if I would segregate that in two, you would see that the P&C (inaudible) is improving every month. Okay?

Okay.

The Canpar/Loomis thing and the ICS and the TForce Integrated Solution. These guys improve all the time. The (expletive) hit the fan with my friends at Dynamex. Okay? So now the US is coming back. If I look at my same-day US operation this quarter versus last year, I'm improved. Okay?

Okay.

If I look at my Canadian, I'm not improved. But the team there took major action and they will improve. So, that is really what happened over the last three or four years.

Okay. That's very helpful.

And to answer your question, double-digit EBIT, is that still possible? Absolutely.

Okay. Do you think that happens next year or--?

No. No, no.

Okay.

We have to do a lot of changes in Toronto in our next-day service. And this is going to happen in -- this is going to happen in the summer, late summer, okay?

The other thing also, Turan, you've got to be careful is you have to exclude, if you want to do some comparison, the severance because we have a lot of severance. Okay? This year in our P&C business probably 60 to 100 people will be let go because of technology changes, because of consolidation. So, that's going to cost me -- if you look at my severance last year it was about CAD 7 million. My severance this year is going to be the same amount. So every year that affects my profitability. But this is an investment for the future, right?

Yes, yes. That's extremely helpful. Thank you very much. That gives a lot of color here.

I guess the only other question that I wanted to ask you was on Target. Was that about a--?

Yes.

CAD 3 million account? Is that right?

Probably a little bit more than that because this affects Vitran operation.

Yes.

So probably, if you look at consolidated numbers for TFI, probably closer to CAD 5 million.

Okay.

Because we're also doing some transborder LTL with them. Vitran was a big account of theirs for the Canadian domestic, so probably in the neighborhood of closer to CAD 5 million.

Okay. And that's -- we should be thinking about all of that not happening this year, right? On a year-over-year basis that's about a CAD 5 million reduction?

Yes. Yes.

Okay, okay. That's extremely helpful. Thank you very much, Alain.

Pleasure.

David Tyerman, Canaccord Genuity.

Yes. Good morning, Alain.

Good morning, David.

A few questions, just clarifying a few things. Did you say that Velocity had an account go down by CAD 9.5 million?

No.

No? Okay. So--.

No.

Okay. Because I just -- I thought I caught that--.

Maybe--.

You were saying a lot of things quickly.

No. Velocity -- what we did -- yes, what I said is Velocity we had one account that we let go. Yes, absolutely, you're right. It's one account that was a little bit more than CAD 8 million because we were doing their Atlanta business, their Florida business. So, yeah, we shed that business. Some of that was late 2014, some of that was also in September of 2014. Yes.

Okay. Okay, so -- and that's a case of you just -- you weren't making the kind of money you wanted, I take it?

No, no, no. It was a terrible business. It was terrible. You see, the mistake I made when I bought Velocity is that it was all (inaudible) it was completely out of control, okay? They were losing revenue. And us, we come in there, the management team is really, really bad. They don't know what they're doing. And they're losing customers like one a day, right, because their service has been so bad. So, we bought a business that was probably CAD 140 million revenue the day that we got in there. But then they lost this account, this account, this account and then you're stuck with the real estate. You're stuck with the people. You're stuck with all kinds of costs and you're stuck with all kinds of claims.

So, it really was a bad move on my part, okay? I never anticipated this company to be so bad because officially we were looking at the numbers we knew that these guys didn't make any money, but we never thought that these guys were just going down to their own death. And one account that took us a long time because -- a bad account you always stuck with a contract. A good account, well, you don't have a contract. That's the nature of our business and our world.

So if you have a great business, then the guy says, oh, that's too good, I'm going to bid the business. And because it's still a difficult environment, then you have to lower your price. When you have a contract with a (expletive) price like we had with this customer, you have to honor the contract, right? So, that's why it took us a long time to get rid of that (expletive) business.

So, do you think your--.

Because we're also stuck with leases. We had about 400,000 square feet of space for this customer. I mean, it's been a nightmare for us.

Okay. So do you think you're at the end of shedding clients like this at Velocity?

Yes, we're done. We're done with that. I mean, we're done. But if you compare us year over year, we're still short, okay? But no, we're done. With the (expletive) business in the US, we're done. In Canada we're not done yet but we will be done very soon.

Okay. And the profit implications, is Velocity making money and improving at this point?

Well, Velocity doesn't exist anymore so--.

Right.

Velocity now is integrated within Dynamex. So like I was saying earlier, I mean, we bought Dynamex at 3%. We moved Dynamex in US up to 8%, then we went down as low as 3.5% again, 4%, and now we're back and we'll do about 6.5% to 7% in this 2015.

So, we're still not back to where we were after making all these changes, so we bought the company. Right?

Right. Okay. (Inaudible)--.

Although we have a little bit more revenue, right?

Right. 6.5% to 7%, does that refer to the Dynamex combined operations, or is that overall (inaudible)?

The combined operation of US and Canada.

Okay.

Which is still far from the debt, right?

Right. Sorry, when you say combined operations, Canada and US, are you referring to all of P&C or--?

No, no, no, just talking the same day last mile.

Okay, same day last mile. Okay, that's very helpful.

Yes.

Okay, thank you.

Second clarification. You mentioned when you were talking about Clarke and Vitran that the CP strike, the possible CN strike and the Sandy (inaudible) hurt you. I was wondering if you could explain how that hurt you.

It's very simple, David, to understand. I mean, you're a customer and you read the news. And you're shipping with me through CN and already, already -- okay, on average, us, because of service of our railway provider, we have a marriage about 20% left behind in the winter. So, these are canned (inaudible) trial because they can make it on the train, alright? So, that affects the service. And then you start reading that maybe there's going to be a strike. What do you do? Well, you pick up the phone and you call me and you say, what are you going to do? There's nothing I can do. If my lineup provider is on strike or there is a risk that he's going to be on strike, I can do nothing except if I've got capacity and if you want to pay the price I'll do it through my truckload division. Right?

Yes.

Now, in order to do that the customer has to agree to pay 20%, 25% more if he deals with us, to be on the road.

Right.

So, what he does is that sometimes he's going to say yes, sometimes you're going to shop and find maybe a better deal because in Q1 the truckload guys are less busy because of cyclicality.

Right.

Right? The containers, all the boxes are completely disorganized because of that derailment.

So, it -- you will have to come to visit our place in the month of February and March when all this happened to really understand the effect -- the domino affect that has -- that this has on us.

So, what's the cost? I don't know. The one thing I could tell you is that us, we're facing the customer every day. And those guys are not happy because we are dealing with them. They don't deal with the lineup provider. They deal with us. Right? So--.

So, that's to understand then -- is it volume, then, that (inaudible)--.

It is volume and it is cost, too. It is--.

(Inaudible.)

Volume and it is cost because then the guy says, hey, could you do this favor for me? Could you do this? Could you do that? And--.

Right.

Because it's a large account, you -- and it's winter and it's Q1 and you've got a relationship with your customer, so you say this is like if you look at the Q4 of UPS last year, what happened with their e-commerce business? The cost went through the roof, right?

Yes.

Why? Because they have customers and they say, yes, yes, yes, we'll service you. But, now they're saying, well next year that's going to be a different story, right?

Yes.

This is what happens when you have instability in this sector. It creates huge effect on your cost.

Okay, that's helpful. And I think I understand that a lot better. And then, on the divestiture side, I'm a little unclear on the truckload. Is it still your intention to do something there or--?

Yes. There is still intention, David. We will definitely do something with the truckload, but it's just a question of priority, right? So, what I said is my priority number one, after a Q1 that I'm a little bit behind my plan. So, my real focus is to make sure that we deliver the plan of 2015. That's why it is (inaudible).

Priority number two is really the waste. Why? Because there's a lot of activity in that sector right now. So, the timing is proper, okay? We're having lots of discussion with lots of people. So, I can't do everything at the same time, so this is why I said to our board, guys, truckload will take care of truckload, but we've got to look at what we can do with the lease first. Simple as that. It's just a priority issue. But, we will definitely do something because I'm a firm believer that we have a great truckload business with a great team. And our plan is really to find a -- another great company probably in the US where we -- for sure, because in Canada, I mean, there's not a lot of real sizable company left, right? So, probably in the US. And then, we have some kind of an association with them, right, to build a huge North American truckload operation. But, that will take some time. It's not the priority of the day. Priority of the day is after a little bit behind plan in Q1 is to make sure that we make our plan towards 2015, which is what we promised that we would do.

And number two is the waste. Waste is a gem. It's not properly valued and you -- will probably something happen there within the next six to nine months, this coming 2015.

Okay, that's helpful.

And on the truckload with finding a partner, is the intention to actually divest the operation nor would you expect to continue to own a significant--?

Yes.

Portion?

Yes. As your first step TFI would still be the shareholder of a combined truckload operation. Right? But, I think that that would be great combination. Same thing could happen in the waste, whereas we take (inaudible) and the rest of our waste business and we combine them with somebody and we become a significant shareholder of the new group, okay. And we work to build a fantastic business in Canada or even in the US, close to Canada. We'll see.

Okay. And that sounds like combined, then, together, work together to build a really good business, and then presumably the last step would be then to actually divest (inaudible).

(Inaudible.) Yes.

Okay.

If the shareholder is -- if this is their will, fine, we'll see.

Okay.

But, this is because the investment and liquid investment because it's a partnership with somebody that's public, right?

Right. Okay, so you just take stock in it. Okay, that's very helpful.

Yes.

And then, on the -- you mentioned, then, the truckload volume was down in Q1 and I think you -- and specifically the East Coast was the issue. Is that just weather or are there other things, too?

No, I think it's just the weather. We were also down in Alberta. This is -- could be a little bit more the environment there. But, although the truckload sector out west for us is really small. So, really, the big thing is really what happened with the weather. Let's take for instance our contracts throughout that division. I mean, they're way, way behind plan. Wow, I mean, they're customers are not shipping. I mean, it was very, very cold in February, March, unusually cold in March, right? So, that's what I'm saying. So, we were down versus plan versus what we did also last year. But, it's just -- we believe it's more, really, an issue than anything else.

Right, okay. That's helpful.

And then, the last question I had, you've made quite a few acquisitions in the last year, year and a half. Presumably these -- you expect to generate synergies, etc., from -- maybe not so much from contracts, but certainly from some of the others that's (inaudible). Is there sort of a ballpark number you would hope to get to and where you are? And can you tell us where you are now on that and how long it would take to get to where we're -- to your goal is?

Well, the synergies, see, David, really on the upside is really with our same day business that we have in Canada, so the -- what we're doing with Little Miss Campfire. So, still we see probably another between CAD 8 million to CAD 15 million of saving with what we're doing, right?

Yes.

On the same day last mile it's got nothing to do with synergies because, I mean, it's our own operation. On the RTL side, I mean, we're going to be running on a combination IT platform pretty soon for Kingsway sea and over land. So, we have that. We shut down three terminals on the East Coast in Q1, so over land took over those three terminals for Kingsway. So, it's an ongoing effect. So, if you ask me on the RLT side it's still very difficult to say, but between CAD 5 million to CAD 15 million is still what needs to be done there.

On the truckload sector, as I told earlier -- as I said earlier, the synergies with the contracts and the America guys is really to work together. So, after Q1 it's still very difficult to quantify that. But, probably you're talking maybe CAD 10 million to CAD 15 million by working closer together. For instance, this contract that we've talked about, of hauling for car trans, compost from Toronto to our landfill, I mean, contracts will take over more of the trucking operation of our track because they are a great hauler from transfer station to a landfill. They will probably start running our tippers and running our transfer stations. So, how much of that is going to be creating some reduced costs and improved synergies. This is why I say between CAD 5 million and maybe up to CAD 15 million. Okay?

Okay. So, if I total all that up that you mentioned, ballpark, you're looking maybe CAD 25 million to CAD 45 million improvement?

Right. Yes.

Okay.

Over the next two or three years still ongoing, yes.

Okay. Okay, that's very helpful. Thanks very much, Alain. I appreciate the commentary.

Very good. Have a great day, David.

Maxim Sytchev, Dundee Capital Markets.

Good morning, Alain.

Hey, good morning, Maxim.

Just a very quick question in relation to the balance sheet and just thinking sort of on a going forward basis. I mean, obviously there's a lot of potential accretive things that could be ongoing, but is there a level from a leverage perspective where you feel more comfortable doing sort of additional M&A and other strategic stuff, if you can provide some color on that?

Well, you see, Maxim, M&A, as I said earlier in the year, is going to be very light in 2015 for us. I mean, you'll see probably one or two, three small deals that will take place between Q2, Q3 and the end of Q4, maybe an important one by the end of the year, okay. And that will be all. So, really, the focus this year is really making the plan, the -- working on the integration of all the different groups and working on our waste solution for our shareholders. So, M&A will be light for us this year. Yes.

Okay. That's it for me. Thank you very much.

Okay, Maxim. Have a great day.

Bye-bye.

Bye.

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

Very good. So, well, thank you very much for joining us today on our call. So I look forward to speaking with you again following our second quarter. So have a great day, all. Thank you. Bye.

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

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