TFI International Inc (TFII) 2015 Q3 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to TransForce' third-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 like to remind everyone that this conference call is being recorded on Friday, October 23, 2015.

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

Thank you, operator, and good morning, ladies and gentlemen. We issued our 2015 third-quarter results press release yesterday after the market close. We'll start with an overview of the most important performance figures for the quarter, and then I'll provide you with more details for each operating segment.

There are two main points I'd like to make at the outset. First, as you know, the economy in Canada has continued to struggle, especially with the extended slump in global oil prices. While the US economy has been more resilient, the oil sector has also suffered there, with no clear signs of recovery.

As a result and because we're always focused on realizing the greatest return possible on our assets, we decided to terminate our residual US rig moving business and sell or redeploy our remaining assets into higher-return activities. For this reason, rig moving is now classified as a discontinued operation in our financial statements.

Second, despite the mixed economy situation, our results were strong, with solid organic growth in our Waste Management and Logistics segments, and a significant contribution from the Contrans acquisition to revenue and the operating income. Total revenue from continuing operation was CAD1.1 billion after (technical difficulty) over a comparable quarter over last year.

Before fuel surcharge, the revenue increase was 18%. Foreign currency exchange movement also had a positive impact. Operating income from continuing operations reached CAD88 million, up 9% over last year. Adjusted net income from continuing operation came in at CAD60.6 million or CAD0.60 per diluted shares, up from CAD58.1 million or CAD0.58 per diluted shares in Q3 of 2014.

Free cash flow from continuing operations was CAD60.7 million or CAD0.60 per share, while the discontinued operation added another CAD19.7 million as a result of the ongoing sales of excess assets. This free cash flow in Q3 was returned to shareholders through the repurchase of CAD62 million in common shares and a dividend payment of CAD17.1 million.

I will now take a closer look at each business segment. Package and Courier revenue before fuel surcharge was at CAD318 million, up 7% over the same period of last year. This increase was due to the acquisition of Hazen Final Last Mile (sic - see press release, "Hazen Final Mile") and All Canadian Courier in the current year.

We are expecting annual revenue of CAD45 million from Asian and [CAD25] from ACC going forward. Excluding acquisition, results were flat, reflecting lower shipping activity, offset by the foreign exchange impact.

Package and Courier's operating income declined 8% in Q3 this year, with a decline in operating margin from 8.2% to 7%, down 120 basis points. Severance and higher transportation costs negatively impacted the margin, but these were partially offset by lower operating expenses.

In LTL, revenue before fuel surcharge was CAD192 million versus CAD198 million last year. Tonnage was down but the dollar yield per tonne grew by a solid 6.5%. The stronger US dollar also had a positive impact in the quarter. Operating income in LTL decreased by CAD9.7 million to CAD12.2 million. Most of this valuation was due to an CAD8.3 million reduction of gain of sales of assets this year versus last.

Turning to our Truckload segment, year-over-year revenue before fuel surcharge raised CAD362 million, up 45% over Q3 of 2014, mainly due to the Contrans acquisition and a favorable foreign exchange impact. Excluding the acquisition, revenue decreased 1%, largely because of economic factors in the oil and gas sector.

Operating income in our truck [road] jumped by CAD11.1 million to CAD37.3 million. Contrans acquisition contributed CAD14.2 million in the rise of operating income. The operating margin was essentially the same as last year at 10.3%. Our strict discipline of aligning supply with demand has allowed us to maintain margins in this segment.

In Waste Management, total revenue increased by 6% to CAD58 million. Much of this increase is attributable to higher volume at the AES soil landfill, and to organic growth at Lafleche environmental complex.

Operating income also saw a healthy increase from CAD11.8 million in Q3 of 2014 to CAD15.2 million in Q3 of 2015. Operating margin was up [84.8%] (technical difficulty) points to 26.4%. This improvement results from lower fuel price, stronger results in our material recovery facility and a more favorable service mix.

Finally, in the Logistics segment, which is now presented as a separate reportable segment, revenue grew by 44% to CAD59 million, up CAD41 million last year. The cornerstone division, which we acquired as part of the Contrans transaction, accounts for much of this increase. Excluding the acquisition, revenue increased by 6%.

Operating income rose by 63% in the Logistics segment to CAD6 million. Again, this is partly because of the acquisition but also due to improvement in existing operations. The operating margin grew by 110 basis points year over year, reaching 10.1%, essentially because of efficiency improvements.

Going forward, we don't anticipate significant change in the North American economic landscape. Lower oil prices have reduced activity in western Canada, which puts a brake on business activity in some of our main operating markets. On the flip side, the lower Canadian dollar should spark more manufacturing and export activity in central Canada.

Meanwhile, higher consumer confidence and spending in the US should lead to improved P&C and Truckload activity south of the border. Factoring out the negative contribution of the discontinued operation, we adjusted our 2015 anticipated result upwards. Continuing operations to generate total revenue of approximately CAD4.3 billion with EBITDA in the CAD520 million to CAD540 million range, and basic adjusted EPS between CAD2.07 and CAD2.22.

We remain committed to maximizing free cash flow and we expect it to reach about CAD300 million for the year with CAD250 million coming from continuing operations and CAD50 million from asset sales in our discontinued operations.

Over the short term, it is our priority to use this cash flow to reduce debt. As we've shown, our decentralized operation structure gives us the ability to move quickly in response to changing market conditions, and to deploy resources where they can generate the highest returns.

We will continue to strengthen our performance by [executing] on our strategy of implementing stringent cost control, efficiency improvements, and asset [rationalization], as well as by making selective and prudent acquisitions.

So at this point, I'm pleased to answer your questions. Operator?

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session.

(Operator Instructions)

Mona Nazir, Laurentian Bank.

Just a couple questions from me. I know that the US rig removing was challenged for a period of time, and that negatively impacted results, even going back to 2014. Is there any other segments or sub sectors where you are seeing some prolonged losses, where you could divest or redeploy those assets? And if that's not the case now, then maybe in the future?

You know what, Mona, the only sector that is still weak within TFI is really our Truckload that is in Texas. And Alberta-based Truckload, we're doing okay. It's not really an issue.

So our Truckload based in Texas, which is mostly hauling pipe and storing pipe for customers, we slowed down. We're not really losing any money, but we're losing the profit that we normally had though.

So I don't see anything in the future in terms of another discontinued operation that would be -- because of it's negatively impacting TFI. I mean, we could see a discontinued operation if ever we would sell one of our divisions. But that's not the case. I don't see anything in the future.

Okay. And then just more of a macro question, or your vision. I was just wondering if you could talk your acquisition strategy and your outlook for the Company.

How much of where you are today has been planned, or is it primarily opportunistic? So did you have a vision that you wanted to get into waste management and then grow it to X size?

You know what, we got involved in the waste management because we had an opportunity, and that goes back to 2004, 2005. And we did a great job with the team we have there under the leadership of Dave Richmond, and previously, Mark Fox. So we did a great job with the team there, and we grew that to a size that now, I mean, we're at a crossroad. And I've said it many times, our priority is to really unlock the value of this division, because right now it is poorly valued.

So if you look at TFI on the global picture, there's value today around the 7, 7.4 times EBITDA enterprise value -- I mean, it doesn't make any sense. To me our Waste Management division is worth way more than that.

So this is what we'll be trying to do. So waste is probably not going to be part of the TFI's future as it is today. But, I mean, we also have a plan to grow our Truckload.

And we've said that, so priority number one is really, lets fix the situation with the Waste Management. And then Truckload becomes the next thing that we're going to be looking at. And probably, Mona, that is something that I'll be working on early next year because I think that we will have a solution coming pretty soon on the waste side.

Okay. Thank you.

And then just lastly for me before I step back in queue, while the outlook section stated that organic growth remains restrained, Q3 only saw a slight organic growth contraction at 0.5% versus 5% last quarter. Is the sequential variance due to the exit from rig moving, or the fundamentals in other segments are stabilizing?

No, I think if you look at our Truckload and if you look at our LTL and our P&C, it is pretty stable. We're not growing fast, whereas our Logistics and our Waste has been growing organically. But the rest of our sector -- we lack volume.

So if you look at the Contrans operation, this is a well-oiled machine. It's not pumping in the profit that it should because of lack of some volume. If you look at our Quebec-based Truckload, it's the same thing. Volume -- if we put a little more volume into our machine, I mean, that would be fantastic.

If you look at our P&C or LTL business -- our LTL business, on the intermodal side, I mean, we're doing well with the quick exit and [via-tren]. Clarke, not so much, because they've been affected badly with the steel industry. Clarke is a big hauler of steel, and so that's why Clarke has been a little affected.

If you look at our LTL over the road, this is, our best market has always been Alberta. And with the situation there, it affected us big time in terms of volume.

But all in all, what we see so far in 2016 is, ill flat. And we are budgeting. We're planning for the same kind of situation in 2016 for the Canadian operation.

So it's going to be improving what we're doing and doing better with less. Or doing more with less I would say.

Okay, thank you.

Thank you, Mona.

Hilda Maraachlian, Cormack Securities.

You gave some color here on the outlook segment. But any initial thoughts in terms of the volume growth, and next year? Do you think things will get worse here before they get any better, or more of the same, or are we at the bottom here?

You know what, I think that if ever this low Canadian dollar sparks the manufacturing in central Canada, I mean, we should start to see some volume growth. That's the way we see 2016. If this doesn't happen, we think that the volume for all of TFI Canada, except on the Logistics side and on the Waste side, the volume should be flat.

We believe that with this touchy, low Canadian dollar -- I mean, something should happen pretty soon. That's our thoughts. But our plan is based on stable volume for 2016. We don't budget according to what we hope is going to happen, we budget very conservatively, so that we match cost with volume.

So going back to your question, I believe that we're not going to do worse in 2016 than we did in 2014 or 2015. We should probably do better, but my comment is that, let's think that it's going to stay stable.

Okay. And so in terms of FX, it's been low for almost a year now. Did you foresee some impact there, are things changing, or we're the same as we were in January of this year in terms of volume pick-up from FX?

I mean, if we look at our Truckload business, or LTL or parcel, FX did not help us, yet.

Okay. And second question here is, it looks like organic growth is being limited, so top-line growth will come from acquisitions. Can you comment on M&A activity here?

Are you going to be active next year, or you're going to focus on integrating the businesses that you bought, and spinning off -- the waste looks like it's going to be done here? So what's your thought on M&A, in terms of M&A here?

I think 2015 -- 2016 -- 2015 was going to be a quiet year, because we had to take care of our Waste Management division. And M&A was really buying our own shares in 2015, so we know what we're doing. 2016 will be a different year for sure.

And I can really tell you our focus is going to be probably into growing our US Truckload base. If you look at valuation of Truckload companies in the US, valuation has come down big time. So I think that the focus for M&A is going to be in the US for us in 2016.

So once we have more information -- and I would say within the next few months, I mean it's going to be clear for me to explain what is really our next step. Once we get all things public, we'll know what we're doing.

Okay. And in terms of size, so it looks like you've got a good M&A -- are there going to be big sizeable companies or a lot of -- bunch of smaller ones?

No, I think that if we look at the US Truckload market today, we're like, say, a CAD400 million Company, so it's way too small. So we're not going to buy a CAD50 million guy or a CAD40 million guy.

So we'll probably do something that is more significant so that we end up with the solid business in the US. And we have a great team in Transport America, and for sure, that's where I'm at now with Greg and the team there. So we have a solid team, so we could build with this team in the US, no question about it.

Okay, thank you. I'll pass the line for now.

Thank you, Hilda.

Walter Spracklin, RBC Capital Markets.

So just following up on a few of those questions. First of all, on the Truckload side where you want to start becoming your acquisition focus, do you have to have a transaction affected with a publicly -- kind of this spin out, have a publicly listed TL company, a US-listed TL company, before you do those acquisitions? Is that a necessary precursor or could you be buying companies and then down the road spin it into a US-listed?

Well, there's many ways to skin a cat, Walter, but one thing that I'm thinking of is, let's say that we come to deal with a US publicly traded company, and what I would probably do is combine our US-based Truckload with them as a first step. Do understand what I'm saying?

Absolutely.

So this Company would be only US Truckload, right? Which would be America and the other Company. And for sure, because the target is a publicly traded company, I mean, we would use their publicly traded company to do that.

So that becomes, let's say, I don't know, maybe a $900 million US truckload company standalone, listed in New York, which, TFI owns a share of that. And probably some other US shareholders would own maybe 30%, 25% -- I don't know. So that is probably the first step.

And then we use that corporation to keep on growing to a certain size, so let's say CAD1.1 billion, CAD1.2 billion in revenue. And then if TFI's intention is to get out of Truckload, then they could always sell the Canadian division to the US truckload company -- and even more interesting if the dollar is that CAD0.75 still.

Right, okay.

So this is different than most people think, and this is why it's so important. But it's still early in the game, Walter.

I want to clarify the waste first, and once this is done, I'll come up with a plan. But you're always fast, you always ask me the right questions. So I have to come out with a little bit of my strategy there. So that's the way I see it.

So that would be a very strong US-based truckload public corporation, where TFI would be a shareholder, a majority shareholder, to start with. And then down the road, we keep on growing this US company. And then at one point maybe it makes sense for this US corporation to buy a Canadian truckload operation. Right?

Got it. Makes sense, understood.

And then in terms of the waste transaction, you had lots of -- I think there was lots of theories out there as to which way you would be leaning, some more complicated than others. I think -- are we moving toward a JV-complicated structure, where there's still some -- or is it more of a cleaner transaction, you think?

No. I think that -- we just had our Board meeting yesterday and a discussion we had with the Board, which they approved what we're doing. And it's not going to be a very complex transaction.

Okay, good to hear. All right.

Just in terms of an update on the integration of your recent transactions, can you give us an idea of what's left in terms of upside, in your view, over the next one year, two years? From the continued integration of all of your recent transactions going back as far as the Dynamexes, right up until as recently as the Contrans most-recent large one?

Yes. So if we talk about our next-day service in the P&C and Canada, the Loomis/Canpar integration, the team there is doing a fantastic job. We are penalizing Q3 with CAD2.5 million of severance in our P&C. That's because of all this integration that is taking place.

And in Q3, we integrated the Toronto operation of Loomis and Canpar into the Canpar hub. In October, we're integrating [Mountain]. We've integrated Quebec City in late September, early October.

So these are integrations that are still going on. And when you look at my P&C, you say: hey, Alain, you didn't do too good, I mean, you're behind last year in Q3; so where are you guys going?

On the next-day service that we have in Canada, I mean, I'm very happy with what [Brian Court] and Rick [Ashey] and [Ping Yang] and all these guys, with the work that these guys are doing, is fantastic. On the same-day service with Dynamex's, Last Mile in Canada, I mean we had some major challenges this year.

We started the year on the wrong foot. We had too many turnover changes in this and that. And so Dynamex Canada is run by a young guy, highly dedicated individual. This guy will be successful, I've got no date doubt about that.

We just earned a major contract in Canada with a large customer of ours that's going to amount to a little bit more than CAD20 million of revenue in 2016. So while we had a rough start -- and the same thing in the US with Scott and his team there. We had a tremendous challenges in Texas with the start-up of one customers that we -- the guy overloaded us with revenue, and all that.

But on the good side though, is that the e-commerce business that we have with the largest e-commerce player in the world, we are going to do about CAD18 million of business with this guy in four or five markets this year. Next year, based on what we know, an additional market will probably be serving him in about 8 to 10 markets, with CAD35 million of revenue. So things are going to get better in 2016 on the P&C side, both next-day and same-day.

Now the Hazen acquisition was a great acquisition in the US. I mean, these guys are specialists in serving OD, so we're using the strength and the talent that's in this company to help us move away from the OD business and dynamic so that we could focus more on the e-commerce side.

On the Canadian side, the ACC, small-company doing very well. It's managed by an ex-Dynamex guy, Roger [Sandew]. Roger has a great team, doing a great job. Those guys are coming out right now with an EBIT that's close to being double-digits, so I'm very happy with the work that's been done there.

And our LTL, that's the big problem. That's the problem we have, is that the market is shrinking. The beauty though, is that our interval guys are doing well, except for Clarke, because he's penalized with the steel business.

So if you look at my intermodal, I don't have any assets in there. So very little assets, so my return on the asset is great, even if my EBIT is only six or seven points. My big problem is the over-the-road guys.

I mean, my best market was Alberta; I got kicked out big time over there. It's a market that shrunk like there's no tomorrow. So I've got a big issue with the over-the-road. But we're working on trying to diversify partnership, get more partnership with some big US players there that could beef up our LTL.

So Rob O'Reilly, he's highly involved in that, with Jeff King and the rest of our team over there. So in order to try to get more business from some new partners or new partnership that we could double up -- and I think we said it before, we just started serving FedEx Freight in Vancouver about two months ago. So that's a great addition to our business, but there's more to do in that sector. So that's what were trying to accomplish without rocking the boat of that market that is really weak.

On the Contrans side, I mean, we're very happy. Contrans has always been a great company. The only problem we have now is that we're missing a little bit of volume. I mean, the activity is not what we anticipated it would be.

We hope that 2016 will be a better year. We hope that this Canadian dollar will start to spark a little bit more of activity in Ontario and in Quebec. But the team there is fully dedicated. I mean, the Cornerstone Logistics now -- and the fact that we got out of that rig moving, and now it's a discontinued operation, you can see how nice of a logistics company we have outside of our truckload operation.

It's a great business. I mean, we're coming out with an EBIT of a little bit above 10 points. I mean, compare us with, I don't know, a [CH or a Lanspar]. See if these guys are running an average of six points, seven points -- and Echo is it two to three points. I mean, we're doing a fantastic job on the logistics side, and we have some growth there.

I guess where I'm going is, if in a tepid volume environment, tepid pricing environment, going to 2016, if you take the midpoint of your new range now at, say, CAD530 million in EBITDA for 2016, what do you have that can be upside-generated internally to your CAD530 million for 2016 if you don't have any top-line growth for that year? Or are we essentially seeing now that we have enough visibility with and enough expectation that we could build in some growth for 2016? How would you point us in that direction for 2016?

You know, Walter, let's be conservative, although we have a liberal government now. But let's be conservative on the numbers.

I mean, us -- what I could tell you, Walter, is that, lets say the market stays the same. We believe that we will show up in the improvement between CAD20 million to CAD30 million, bottom line. The same markets, everything stays the same. So if the midpoint is CAD530 million, so we should be in the CAD550 million to CAD565 million range next year.

Okay, got it. That's all my questions. Thanks very much, Alain.

Thank you, Walter.

Benoit Poirier, Desjardins Capital Markets.

Just to come back on 2016, very good color about the CAD20 million, CAD30 million you could improve on the bottom line. Could you point out on which segment could benefit the most in terms of margin improvement, and what could be left beyond 2016?

Okay. Well, number one is, if we would be the owner of our Waste business in 2016, we know that the Waste will definitely improve between CAD5 million and CAD8 million -- so that's number one. P&C next-day service in Canada, there again, the goal there, for sure, Brian and his team, they will come in with an CAD8 million improvement to our bottom line. Which is about 100 basis points of the next-day business we have in Canada.

Now our same-day guys -- which is about 175 in Canada and let's say 450 in the US -- those guys, they have to be above one. So it's probably going to be between 100 points to 150 points.

LTL, we cannot do worse in 2016 as we did in 2015. So there again, we will probably improve that by about CAD3 million to CAD5 million, conservatively speaking. And then if you look at our Truckload, if we have the same volume, if everything stays the same, there again, working closer with America and the rest of our division. There again, if you look at it, we're a CAD1.8 billion Company, Canadian dollars. So it's not going to be 100-basis point, but it could be something in the neighborhood of 50-basis point improvement there.

Okay, that's very good color, Alain. And just in terms of free cash flow, obviously still solid for the year, CAD300 million. But your funded debt/EBITDA improved to 3.3 times, which is getting closer to your covenant. So I'm just wondering, especially in light of your M&A comments for 2016, what is your plan for de-leveraging the balance sheet for 2016, and where you could be in terms of debt/EBITDA ratio?

So you know what, Benoit, if I wasn't sure that we had a trade coming soon, I would never have bought CAD60 million of shares in Q3, to be frank. So we know that something will be happening soon. I mean, we've been talking about that for the last year. So we're very close to coming out with what we've been working on.

And once this is known, everybody will understand that this leverage is going to be down big time. And after that, that's the only -- because we don't want to issue any shares. As a matter of fact, we're buying back our shares, we kept on buying back our shares. So we're not going to issue any new equity.

But once this is done, you'll see our leverage go down in the neighborhood of a two. So that opens up 2016 to be able to start moving back into the M&A. And like I said, a valuation of Truckload in the US -- I've come down big time. You look at all these nice truckload companies in the US, and they were down what -- 30%, 40% from peak valuation less than year ago, right?

Yes, I know definitely. Okay, that --

You know what, Benoit, the timing is fantastic for us. If we can come up -- I mean, we've been working big time on selling this waste situation. And once this is done, now we are in a position to make some moves, and I think that we'll surprise a lot of people in 2016. I mean, we're very quiet, but we're working behind the scenes, and I think that our shareholders will be really satisfied.

Okay. And just on the e-commerce side, it seems that there's a lot of promising growth going forward. So I'm just wondering if you could provide more color on the current revenue right now?

It seems that you might be running close to CAD50 million, and could almost achieve more than CAD150 million next year. So maybe if you can walk us through what are the current contributions, and also if the volume could positively impact margins going forward?

Well, you see, Benoit, what's happening is that more and more, a small share of the e-commerce is going to the same-day, [lasline] guys. It's small; it's nothing big. And we started slow with guys like Google Express, which -- they are not doing that well, but I mean, it's still a very good customer of ours. In terms of growth, they're not doing that well.

But if you look at the largest e-commerce player, I mean we started small with these guys because we're not in the business of practicing delivery. We have to make money. And we can't work for somebody where we are losing money.

So that's why now finally we are servicing them slowly. We started this year in San Diego. We started at Orlando. We started Tampa. We just opened up LA with them, and Chicago, and we have eight new markets scheduled for 2016 with them.

But we're making the normal gross margin with these guys and the normal EBIT. So that is the direction we're going in. We're trying to work with other e-commerce players.

And this is why the focus of Dynamex is: let's move the Staples and OD business that we have within Dynamex to the specialty shop that is Hazen. That is their specialty. So once you do that, then the Dynamex team is going to have more time to focus on growing the e-commerce with those retailers, and also grow our -- not pharmaceutical business, but our health-related business, that represents about 20% of our business today.

Very good. And Logistic -- first time you disclosed totally the division. It's obviously a nice business, with good margins.

Could you talk a little bit about your growth prospect, and also how it fits with the rest of the business? And given the current valuation and the logistic guys, whether it could be also an opportunity to divest that division over time?

Yes, it could be, Benoit. But if you look at the best company in the world, UPS -- and FedEx -- I mean, those are the two best companies in the world. And you see these guys are running an LTL operation, a P&C operation and a logistics operation.

So those three, they fit very well together. So really, our goal is to growing our Logistic organically. And maybe at one point -- and I say maybe -- at one point, some M&A activity in that sector.

So nothing -- the small deals, I'm not a big fan of the small deals in that sector, because you always rely to one or two guys. So maybe that could grow to our M&A, but a more significant acquisition down the road.

And maybe at one point, if the Truckload becomes, like I was explaining to Walter, a standalone division, it makes sense to keep LTL, P&C and Logistics all together -- to be able to be comparable to the best companies in the world, which are UPS and FedEx. And DHL, to a certain degree.

Okay. Thank you very much for the time, Alain.

Very much a pleasure.

Kevin Chiang, CIBC.

Thanks for taking my questions here. Just going back to your deleveraging comments, it sounds like in order to get down to two times, I guess by the end of this year it sounds like, you're going to need more than just some of the smaller asset dispositions and internally generated cash. Am I to read between the lines to suggest a waste deal could be happening quite imminently here -- not just an announcement, but an actual transaction could be happening quite imminently here?

Well, we've been working on that, Kevin, for the last 12 months. And it's been our priority, so we've talked to a lot of people, we've met a lot of people. We have lots of interest from three or four strategic players.

So you're right, Kevin. I think it's time that we call a horse a horse, and we should be coming out pretty soon with a final solution for this great company. It's always sad, but you look at that and -- look at my Q3, how the team there is doing a fantastic job. Look at what these guys have done in Q3.

And I was looking at my forecast for October, and we're just flying with the improvements that Dave and his team is doing there. But there's a time that you have to make a decision for the benefit of the shareholders, and maybe we're getting close to that time.

That's very helpful here. And just a point of clarification. Are you done with your gross CapEx for the year?

It looks like you're at the upper end of, I think, the guidance you released earlier this year. So should I be thinking of CapEx being -- or gross CapEx being effectively nil in the fourth quarter?

It's not going to be nil, but it's going to be much lower than Q3. Q3 was a big CapEx month for us, absolutely.

That's helpful. Maybe just turning on to e-commerce, a lot of helpful comments you provided earlier. But when I look at the headlines, I'm reading more about Canada Post setting up pick-up sites, or them becoming much more competitive on the e-commerce space. I think I read somewhere recently, Uber is looking to get into the same-day delivery.

So I'm just wondering, from your perspective, the tension points between the growing pie versus the increasing competition? And maybe what you're facing from a disruptive technology perspective as you look to grow the e-commerce platform?

You know what, Kevin, the e-commerce will grow big time over the next 10 years, 15 years, no question about that. And the best player in Canada is really Canada Post, because they have a great coverage. And they don't charge anything for their service; they're cheap.

So for sure, where there's no density, like all the remote location in Canada, I mean, us, we'll never be a player. Never. Unless it goes through our Loomis/Canpar next-day service, which is not really something that will probably happen big time. Our game, our really our market is the high-density areas of the US and in Canada.

So if you think about Canada, you think about Vancouver, you think about maybe Calgary and Edmonton, you think about Toronto, you think about Montreal -- the big markets in Canada, we could be a major player. It could be important to us.

But if you think about Silvery, Ontario, we'll never be an e-commerce player in Silvery. It's impossible. There's nobody in Silvery; it's a small town. Or Red Deer, or Camrose, or Chicoutimi.

No, it's not going to work. So us, our model is very efficient. It's very lean and mean, but it works only in large metropolitan areas -- that's it.

So LA, for instance, it's going to be a great market for us. Tampa is going to be a great market for us -- we're doing about CAD4,000 a day in Tampa today. But Tampa, it's big. It's not a 200,000-population town, right?

So we can't fight guys like Canada Post or USPS in the US, in the small town. But we could be a player in New York City, we could be a player in Chicago. So this is why we're serving right now for the largest e-commerce guy about six markets, and next year will probably be about 15 markets with them.

Okay, that's very helpful. Just last one for me.

When I look at your TL operations, if I recall correctly, one of the broader strategies when you acquired Transport America were reducing your dead miles on some of the trans-border traffic in and out of the US, and potentially just improving your flow of goods through the continent. I know it's still early days here, but have you started to see the benefit of that from the network in adding Transport America? Or is it still acting as a separate entity, separate from the rest of your TL operations?

We're doing that, Kevin, but really small. So far, its really small because, don't forget, if you look at the footprint of America, they're more like a Midwest-type carrier than an East Coast-type carrier. So to be able to connect with our Quebec-based truckload guy and Ontario-based truckload guy, it's got to be more of an East Coast-type of guy than a Midwest-type of guy.

So I mean, America is one of our footholds in the US. So the next one will probably be more of a player on the East Coast, so then it would be easier. But what we see in America, we see a great team running a company with an 88 OR, so that's middle of the bag. I mean, you've got guys at 84 -- but America is an 88 guy.

So they're better than guys at 92, but 88 is still far from 85. So the goal right now, working with Keith and his team, is to bring America down to an 85 over time. It's not going to happen overnight. Number one.

Number two is to also -- the capital intensity of America is much higher than anybody else within the TFI family. If you compare America with the other truckloads in the US, you say: well, they're not bad. Well, me, I want to compare America with what we can do in Canada.

So our capital intensity is much less in Canada. So that's the other thing that we're working with the folks here at Transport America. And it takes time. It takes time, and we're moving in the right direction.

So this is why for me, once we have the situation resolved for the Waste, our next step, really, is to find the right partner, where we could combine, down the road, our solid America team with somebody else and create size. To me, that would be a standalone, US-based truckload company, where TFI has an ownership, and listed in New York, and the rest of the shares could be owned by other investors.

That is very helpful. Thank you very much, Alain.

It's a pleasure.

Jason Seidl, Cowan.

Just a couple quick ones for me, since a bunch has already been asked. When you're looking at TCAM and their fleet, is there anything they might need to do on the CapEx side in 2016? Or is the fleet looking like the rest of the publicly traded truckload guys -- extremely young?

It's still extremely young here. I mean, we're running America like the comparable -- like the Knight or the Heartland guys. I mean, I was just talking to our guys here. Absolutely, we're the same ballpark.

So when we think about CapEx for that particular segment, and probably going to be maybe down or flat next year?

Well, you know, we're talking CapEx -- as a matter of fact, we're in Minneapolis right now, and we're going to be reviewing budgets with Keith. And the first number of CapEx for America is going to be in the CAD30 million neighborhood. So it's comparable to what we've done this year so far.

So about flat, okay. If I could switch also to that last model of business I think you mentioned that you'd like to do some more acquisitions. Are you talking in the US, or are you talking Canada?

US.

The US.

US. Absolutely.

And what are you seeing in terms of demand? I mean, we just saw Amazon out last night just blowing numbers off the cover. You know, we've heard from other carriers that service Amazon, like the Covenants of the world, that there were a lot of [ex] better work good.

Expectations for the e-commerce peak season is actually very good. I'd just love to hear what you're hearing for your Company.

Well, when I talked to the guys, Jason, I mean, they're just going crazy with these -- don't forget, we're servicing them up only in a few markets -- six or seven markets so far. Next year is going to be probably a bigger issues for us. But today, I mean, the guys -- I was looking at the forecast for October, November and December, and we're just going to go through the roof.

To give you an example, we're going to be doing a little bit more than CAD1.5 million with them in October. But December is going to be double that.

Now when you say -- them -- are you talking Amazon or are you talking Google?

Same guy that you're talking about.

Oh, got you.

I don't want to say the name, because then the guy -- you know. So we're talking the same guy.

The unnamed e-commerce flare.

Right.

Sounds good. Alain, I appreciate all the time today.

Thank you, Jason. Take care.

Cameron Doerksen, National Bank Financial.

Just a couple of quick ones for me. First, I just wanted to quickly go back to the Waste. I think it's pretty clear, you've articulated what the strategy is there and the timeline on it.

But I'm just wondering if it still might be your intention that whatever happens with Waste, that TransForce would continue to be a minority shareholder? Or is your intention to do something with the entire business?

Well, you know what, I'm a big fan of Waste. I'd like to be just a waste Company, because it's such a nice business and it's easy to run. I would have more hair and less gray hair if I would be just in the waste business.

But you know, Cameron, this is not the reality. So Waste is only 5% of our revenue.

Now, are we going to be a minority shareholder in a new company? This is -- I don't know. I can't really answer that, Cameron, today. It all depends on at what price and what would be our influence, and who is the partner. So it's a tough question to answer now. But as soon as we can come out publicly with what's happening, then I'll be in a position to explain exactly what's happening.

Okay, fair enough. On the rig hauling, the assets that are for sale -- maybe it's in the [MB] and I didn't see it. But what's left to sell there, like, dollar value?

Well, if you look at our assets for resale, which is -- I don't remember the number, but it's something around the CAD25 million. So that is really what's left there. And we believe that most of that should be sold before the end of the year or sometime early in 2016.

We don't have any issues with truck and trailers; it's not an issue at all. Every time we sell these assets, we make money.

The problem I have is with the cranes. Cranes is a big problem that we have. And slowly, we're selling them one at a time. And so we're moving forward, but I don't want to dump those assets on the market and lose CAD2 million, CAD3 million.

So this is why I said to the guys: listen, we'll go slowly in Texas, in Denver, selling those assets. So it may take a little bit of time, because I want -- I don't want to lose any capital on these assets. Or as little -- as little as we can.

Right. And you mentioned in the truckload business in Texas, which is mainly pipe moving -- is that business going to be managed as a separate entity, or is that something you would roll into the Transport America? I'm just wondering how you're going to treat that business?

This is under the responsibility of Bob McGonigle. Bob runs all of our energy business in Western Canada, so West [Weight] and CF Dedicated, and all of that. So he's involved in running Winalta, which does the same thing as Farmer in Texas. So no, it's not going to be under America's belt. It's still going to be run with our energy specialist department.

Okay. And on the Logistics business, now we've got a little more information of that as a standalone, I'm just wondering if you could talk about what the seasonality is in that business? And whether the margin that you reported in Q3 -- is that something that is sustainable on the full-year basis?

I think so, Cameron. I mean, you'll see us going forward, and it's a great business. We run a great business.

And don't forget, this is only part of our Logistics, because we have more than that within our Truckload sector. You know 20% of our bottom line in our Truckload division today is asset-light-based. Which is fantastic. That's why our capital intensity is so low compared to, let say, a US truckload guy.

So what you're seeing there in our Logistic is standalone Company that have no assets whatsoever. Like an Echo or like a Landstar or like a CH in the US. But we also have asset-like revenue within our Truckload division because 20% of my profit in my Truckload comes from operation that doesn't involve any assets. And that is something that America doesn't have today, and that is something that working with Keith -- will be working -- they have some, but small.

Okay. Just final question for me, just on M&A. You talked about the Truckload in the US. Is there anything more you like to do in the P&C space in the US to grow your network there?

Yes, well, the P&C space now, you're right. If we see something that makes sense, right? So now we're looking at a small guy in the US that fits.

But it's nothing going to be big. So it's a small CAD15 million guy. It's a CAD20 million guy. Like we bought Hazen -- great acquisition.

But we're always on the lookout, but is not going to be anything major for now. Because our focus is really to beef up our presence right now in the Truckload in the US, because I see an opportunity. We have a solid team in America, and we could build with this team to a little bit more size. And because valuations are more reasonable today, then you could do a deal.

Right. That makes sense. That's great. That's all I had. Thanks very much.

Thank you, Cameron.

Turan Quettawala, Scotiabank.

I guess most of my questions have been asked and answered. On the yield side on the LTL, that was really nicely up about 6.5% here in that business. Can you to share with us, were those price increases, or is that just mix? And how sustainable is that?

No. You see price increases is a little bit of that, Turan, but not really much. It's really yield. It's improving [cessorial] charges, it's a little bit also the US exchange that's helping us.

And it's also low-margin accounts that, if we can get better margins, I mean, we just say: guys, I'm sorry, but we can't service you. The chance we have now more and more in the LTL world is, we have good operators like Mullen getting involved more into the LTL sector. That definitely will help us. The only problem is that Murray is only in Alberta and Saskatchewan for now.

So I mean, for sure, the more that we have those professional guys that want to make money, that's going to help that LTL market, that's for sure. Because we still have too many guys losing money.

I just looked at one company about two months ago, and these guys were, you know, like another DHL Canada. When we bought DHL, those guys were losing 6%, 7%. That's the same with this guy. He's fairly big guy, and they don't have a solution but to lose more money every day.

So to answer your question, yes, it's a little bit of this, a little bit of that. And then that Rob and his team there are working like slaves. It's the worst market that we have right now. It used to be the best market in 2008, and now it's our worst market.

We also made some changes in our regional LTL Company. So now if you look at CF, okay, CF is becoming more and more of a regional carrier. Well, that was always their base. CF was always the solid regional guy, and now it's going back to being just a regional Western Canada carrier.

And we're doing the same thing with Kingsway. He's now more of a regional carrier only in Ontario and Quebec.

And also the leadership has changed there. So we announced that Bob McGonigle, which is based out of Edmonton now, will be responsible for leading the pack there of CF. And a Quebec guy, one of our EVP GF, will be responsible for improving the Kingsway results. So that will take effect -- it's taking effect now.

And the guys are working, because the over-the-road LTL business that we have -- I mean, we have to do better. Our interval, we're doing fine, we're doing better than 2014. We'll do better in 2016. But the overload is costing me a fortune, because I've got tons of assets and the return is so poor.

So whereas I've got better returns, way better returns with the intermodal. So the pricing improvement that you see, that's the direction we're trying to go. Work on the cost, and try to get some improvement on the revenue side.

Got it. That's really helpful, thank you, Alain. The next one that I had was -- this is a follow-up on the Canada Post stuff that you were talking about earlier. I understand your comments about being more focused on the urban centers. I guess my question is, if Canada Post were to come out with more stores in the urban centers, would you consider something similar for your business, on the e-commerce side?

We have some network already set up today, but we're nothing close to Canada Post. We don't have any store, but we have some partnerships where we could drop the parcel for the customer.

But we have a small network. I don't remember exactly the number of spots that we have in Canada, but I think we're about 150 to 200. Still very small.

So that's one aspect of the e-commerce. Because if you look at the e-commerce, what the brick-and-mortar guys are trying to do now is, you order online and you pick up at the store. So that's one way of doing it. Or you order online, and they drop it to a point close to the guy's home, and he goes and he picks it up there.

Or the other solution, which is more favorable to the buyer is, it's home delivery. So the consumer prefers the home delivery, for sure. But it's more complex. But that is exactly what we're doing -- us -- more than just a drop spot. But we have the facility to do that, but it's limited.

Fair enough, okay. I agree with you. I think I prefer home delivery, but I was reading some research, and they were suggesting that a lot of people like the pick-up option as well, because they can work on their own time.

Absolutely.

Just one more question, Alain. On the leverage, I understand your comments about de-leveraging here pretty quickly. But it seems like your covenant came down a little bit from 3.15 to 3.5. Could you just give us some clarity as to why that occurred?

What happens is that our covenant moved up when we acquired Contrans. So the deal we had with the banks at the time is that over a year, you will have to go back to the 3.5. So a year is now. So that's why we're back to the 3.5, and 3.5 is the normal covenant that we have to respect.

Got it, that's helpful. Thank you very much, Alain.

Pleasure, Turan.

Maxim Sytchev, Dundee Capital Markets.

Just two very quick questions for me, Alain. I was wondering if you can please provide the percentage of revenue that's actually coming from Western Canada right now -- not just related to E&P directly, but just out of that province in general?

That's a tough question. I have to tell you that off the top of my head. So I would say total -- if I include the P&C, if I include the LTL, if I include -- I would say between 6% and 8% of total revenue for TFI.

6% and 8%? Okay. And --

6% to 8%.

Right. And that has shrunk because of the absence of Rick moving, right?

Absolutely, yes. Hey, you know, Max, also we're down big time if I look at my CF, for instance, or if I look at my Truckload base operation. I mean the activity is much less in Alberta than it was just a year ago.

So that's why if I look at 6% of four, that's $250 million. So that's the minimum, and it's probably between $250 million and $400 million today.

Okay, that's helpful. And then in relation to when we talk about Canadian dollar depreciation and hopefully exports rebounding down the road, I mean. I don't want to get into some kind of a metric modeling, but do you have a sense in terms of how much of your business would be potentially levered to that increasing or improving dynamic that comes sort of 2016?

Well, the big influence of that Canadian dollar depreciation is our Truckload, for sure. Normally what we've seen in the past, if you go back to 2005, 2006, 2007 and 2008, when the dollar appreciated to par, I lost about $200 million of my Truckload business from, let's say, 2004, 2005 to 2008. Now I've lost that $200 million on $800 million. So I lost 25% of my revenue overnight, over a period of a year, year and a half, because of the Canadian dollar appreciation.

Now if you look at the size of our business today, and you say that you will recuperate only 30% of what we've lost, because, you know, it's never going to be the same, et cetera. But we are a CAD1.2 billion, CAD1.3 billion, Canadian, because of Contrans now. So I mean, could that be $100 million over and above the Truckload if finally we start to see some action? To me, it's a minimum.

Right, okay. That's very helpful. That's actually it for me, thank you very much.

Pleasure, Maxim.

David Tyerman, Canaccord Genuity.

The first question, just on the CapEx. It looks like you're going to come in around CAD150 million, CAD160 million, maybe CAD170 million this year on the gross CapEx. Can you give us some sense of what you think the number could be for next year?

It's about the same, David. Now you have to take into consideration, this is gross CapEx. You have to deduct the disposal.

Yes. I understand, and I have that totaled separately.

Okay. And you know what David, one thing I have to add is that CapEx Is more because of the US dollar appreciation.

So a year ago, we were buying trucks for CAD1.12, today we're buying trucks at CAD1.30. So that means a truck is 18% more money in Canadian dollars than was just a year ago. So if you're buying CAD60 million of trucks in Canada, while you're paying 18% more money today than you were paying a year ago because of foreign exchange.

Absolutely.

So it's the same number of trucks, it's just costing you 18% more money.

Right. And do you think this is a run rate for the Company now going forward?

I would say it's in that neighborhood. So what I've always said, David, is that we should be running, net of all the disposals, in the neighborhood of CAD100 million. This year we did little bit more than that because, don't forget, in our CapEx this year, we had two acquisitions that Contrans made. We bought [Vaneral Boy] and we bought [Casberry], it's small; but that cost us about CAD6 million or CAD7 million. And this went through CapEx, not to business acquisition, because we didn't buy the company, we just bought the asset.

So that's why I'm saying my CAD100 million has to be tweaked because of FX. So let's say CAD100 million year ago is CAD120 million today, net of disposal. So that should be the number. And with Contrans in Ontario, we are the king of the king. And for sure, there will be more of these small tuck-in deals here and there to beef up our position as leader of leader of the leader in Ontario.

Okay, very good. And then on the P&C and the LTL, my impression is that the margins haven't improved as much as we might have thought a couple of years ago. And so two questions on that.

One, why is that? Are there any big things? I mean, you talk about a lot of things here -- severance, et cetera. But I don't know holistically whether there's some big themes here that have caused a bit flow or improvement.

And then the other one is, where are we going? At one point P&C was supposed to go to double-digits. The LTL was too. So I'm just wondering what your thoughts are on that also?

So (multiple speakers). So the P&C business we have in next-day service in Canada, we're improving all the time.

Now when you look at my numbers, you don't see that, because it's been dragged down by my same-day, which is doing worse this year than last year. I mean, my same-day business, both in Canada and the US, I'm $8 million behind last year so far, after nine months. So it's been a very challenging environment for my same-day, because my next-day is improving.

And for sure, I've said it many times: our next day service in Canada will definitely be a double-digit EBIT Company within the next year, two years. The goal is there to improve by 100 basis points. You know, we had to let go about 75 people in Toronto just a few months ago because of all the changes that we made. That's why it's cost me CAD2.5 million in severance.

Now think about those 75 people that cost us maybe CAD40,000 year. Those guys are gone. So that's CAD2 million or CAD3 million savings next year. And these are all the changes that we keep on doing.

So my next-day service in Canada -- Brian Court, Steve, and Rick Ashey, and all these guys, are very definitely improving. My same-day operation in Canada under Chris, he had a very rough start, 2015. That's not going to happen again. And we're adding some new businesses.

So he should be -- he will never be a double-digit within the next year or two, but instead of being a six, he's going to be an eight next year. And the same thing in the US.

So I'm very confident, David, that over the next year or two, we'll keep on improving our P&C. We looked bad this year because we were behind last year. So you say: hey, where you going? You're not going up, you're going down. But if you exclude, and if you look at the picture next year, we will definitely improve that by at least 100 basis points.

On the LTL side, that's a different picture. The LTL, over-the-road, it's really a very difficult market. Our best market is still Western Canada.

But our most difficult market is still Ontario and Quebec, where the activity is not picking up, volume is less. We're working on the rates, we're working on the yields, we're co-working on the cessorial, we're making some leadership changes to be closer to our people, and that's the goal. But to say that LTL will be a double-digit EBIT within the next year or two, it's not going to happen. So we're a six-, seven-point guy. Maybe the goal to be a 7.5 next year, an improvement, but definitely not being a double-digit within a year or two.

The P&C guys, I've got more faith there. And don't forget that Alberta really affected our P&C and LTL business. Our volume in Alberta are down like there's no tomorrow. So that's another reason why it's been difficult for us to make our plan for 2015. This oil situation is really not helping us at all.

Okay, that's very helpful, Alain. Thank you very much.

Pleasure, David.

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

Okay, so ladies and gentlemen, thank you for joining us today, and I look forward to speaking with you again following the release of our fourth-quarter results. So everybody 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.