Earnings Call: Q2 2019

Jul 26, 2019

Earnings release

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TFI International Second Quarter 2019 Results Conference Call. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. Before turning the meeting over to management, please be advised that this conference 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'd like to remind everyone that this conference is being recorded on Friday, July 26, 2019. I will now turn the conference call over to Elaine Bedard, Chairman, President and CEO. Please go ahead. Well, thank you, operator, and thank you, everyone, for joining us this morning. So yesterday, after the close of trading, we released our Q2 results. And if you need a copy of the release, please visit our website. So we continue to have a record year due to our steadfast commitment to executing on the fundamentals of the business regardless of the economic cycle. This remains the case at TFI International despite the recently declining freight trends. This focus of the fundamentals allow us to drive strong and consistent free cash flow and earnings per share that we know our shareholders appreciate and that allows us the flexibility to optimize our approach to the business. As a reminder of what this sharp focus entails, during the Q2, our team constantly drove operating efficiencies, we pursue an asset light business model, we maintained our strong balance sheet and we sought accretive business acquisition in a highly disciplined manner, completing 3 during the quarter. I assure you this focus will not change given our aim of generating not just growth, but profitable growth, all in the interest of creating and unlocking shareholder value and whenever possible returning excess capital to our shareholders. Taking a look at our 2nd quarter results, our overall revenue grew 2% year over year to $1,340,000,000 the highest quarterly revenue in our company's history. More important to us, given our focus on profitability, not just the top line growth, operating income from continuing operation was up 21% to $149,000,000 and our adjusted EPS from continuing operation on a diluted basis was up 19% to 1.18 We had 2 largely offsetting one time items in this quarter. First, we recognized a gain on acquisition of $11,000,000 related to the BeavEx transaction in April that you'll see in intangible items. 2nd, we took a $12,000,000 legal charge net of tax recovery related to an accident in 2012 in our legacy rig moving business that you'll see in discontinued operation this quarter. Our strong operating results this quarter stem from the continued growth and profitability of our business. Let's have a look at each segment now. Our P and C represents 13% of total segment revenue and revenue before fuel surcharge was flat at 159,000,000 dollars Operating income held constant at €30,000,000 and the operating margin was 18.9% versus 19% in the corresponding period year before. This stable performance came despite the general slowing in the freight environment, which we believe reflects our commitment to deploying cutting edge technology, optimizing the business mix and asset utilization and leveraging our strong network to capitalize on e commerce growth opportunities. LTL represents 19% of total segment revenue and generated before revenue before fuel surcharge of 219,000,000 dollars relative to 239,000,000 in the prior year. Most importantly, our operating income climbed significantly to $30,000,000 up 22% and our operating margin jumped 340 basis points to 13.8%. This strong performance reflects a 14.6% increase in our revenue per 100weight, excluding fuel surcharge, as we continue to focus on the quality of our freight. Our Truckload segment represents 49% of total revenue and generated revenue before fuel surcharge of $570,000,000 up a solid 9% over the prior year period. Truckload operating income expands significantly, up 21% to 67,000,000 dollars as our operating margin increased 120 basis points to 11.8%. Our adjusted operating ratio were 87.1 for the Canadian truckload, 87 for the specialized truckload and 90.2 for our U. S. Truckload. The U. S. Truckload figure represents a significant improvement of 430 basis points compared to our year earlier performance. Logistics and Last Mile represents 19% of total revenue and generated revenue before fuel surcharge of 245,000,000 dollars relative to $247,000,000 in the prior year Q2. Our operating income benefited from a onetime gain in the BeavEx acquisition was $29,000,000 or $18,000,000 net of this gain. Our Canadian last mile operation led by Cal Atwal have over time produced a significantly higher margin than in the U. S. And we're pleased to have announced earlier this month that Cal will now be responsible for our U. S. Last mile operation in addition to Canada. Now let's turn to our capital allocation. We've invested $78,000,000 in business acquisitions during the quarter, and we returned $85,000,000 to our shareholders, including $20,000,000 of dividends and $65,000,000 of share buybacks. As of now, we've executed on the entire buyback 6,000,000 shares that was first granted in September of last year. Earlier this week, our Board approved management's request to increase the maximum number of common shares available for repurchase under our current NCIB by 1,000,000 shares, and we have approval from the Toronto Stock Exchange. Going forward, our capital allocation plan remains consistent as we intend to buy back shares and extend our track record of identifying attractive acquisition opportunity, executing on them in a highly disciplined manner. In terms of our full year outlook, we're pleased to increase our guidance for full year adjusted and diluted EPS from continuing operation to $3.90 to $4 up from previously stated range of $3.80 to $3.90 So with that operator, I would be pleased to take investors' question. If you could please open the lines. Thank you. Your first question comes from Jason Seidl with Cowen. Your line is open. Thank you, operator. Good morning, Elaine. I wanted to focus a little bit on your trucking segment in the Clearly, an excellent job by you guys in an extremely tough environment when we look at some of the other results. Can you go over some of the aspects of that 430 basis point improvement and what really drove that? Well, as we said, Jason, I mean, we have a fantastic team now running our U. S. Truckload operation under the leadership of Greg Orr. And like all the discussion we're having with Greg, it's always been turning around. We got to be lean and mean. And as we always say, the Tiger is always the last one to survive in the jungle. And we know that the freight environment in 2019 is not the same environment as it was in 2018. And that being said, we've also said that with Greg and his team, said, guys, we've got to work on the costs because this is something that we can grow can control. We cannot control the market. So market, you got up and down and all that. But if you are lean and mean and you control your costs and you're doing a better job on that, I mean, you would bring the results like the guys are doing now. So what have we been working on is the same story is let's get the miles to the driver. Let's get quality miles to our driver. Let's make sure that we use our the asset to the utmost limit that we can use then the trucks and the trailers. Let's make sure that we don't have equipment sitting at the fence like it used to be the situation a few years ago. Let's work on our fuel economy on our trucks. Let's make sure that our maintenance cost is in line. And if I look at history and I could say today that our CFI team on the maintenance cost is as good as our Canadian operation now. We still have some works to do at TCA, but basically the MPG, the usage of the equipment, the miles and all that, these are all things that we've been working on, okay, with Greg. Also, we are investing in some technologies because right now, PCA Financial System is not the same as CFI. So by the end of this year, okay, our TCA management team will be running in the same Lawson financial software that our CFI team. So now Greg, it's easier for him to oversee both operations. We're also looking at our TMS to run because we still run a very old platform, both TC and CFI. So this is going to be a major investment of ours into 2020. Once we're done with Lawson, we're going to be working on the new TMS, that's the the CFI, TCA TMS for the U. S. So the focus there has always been guys, okay, let's take advantage of the market. Market is up, okay, fine. But let's never forget about cost. We got to be very cost conscious, efficient, improve operation. And this is what we've been done. I mean, if you look at that now, we're at combined operational hours about 90 point something, 90.2, I think. So it's quite an accomplishment if you just compare it to a year ago. And if you compare it to 2 years ago, I mean, this is just magic. I mean, how is that possible? So our team, we're very proud of our team now in the U. S. That are running our truckload operation, very proud. And like we are proud of our Canadian team because if you look at our specialty TL and our van division in Canada, we're running an 87 OR in also a difficult environment there. No, that was a clearly good job in the quarter about you guys. How should we think about that OR sequentially in that truckload division moving forward? I mean, are there still costs to take out when we look at the back half of this year? Or is this something I'd say it's a difficult market, if we can maintain this, that'd be great. Well, the way we see it, Jason, is that our plan remains basically the same. We see the rest of the year being soft, okay, in the U. S. And the same in Canada. I mean, the freight environment is still going to be soft in our mind. Hopefully, I'm wrong and it's going to be stronger. But so this is why our guys like Greg Orr and Steve Brookshaw and Ken Taranjo, those guys are really focused on let's make our operation even more efficient than they are today. Now like I said earlier, we cannot control the market, but what we can control is our costs. So our focus is going to be guys, let's get costs even better than what we have today. And it's an ongoing always try to do better. Now based on our plan and based on our guidance, okay, we're improving our guidance on an EPS by $0.10 only, okay, which is not a lot because we're conservative. But in this plan, I mean, it's based on the fact that our truckload will perform, okay, about the same way as they're performing now. So hopefully, I mean, the market does not create too much of an issue for us. I'm not going to look for you here. Next question, just want to jump to the LTL before I turn it over to somebody else. Obviously, you said you improved the freight quality a lot. But I know you guys before really focused on cost before streamlining that network, taking some of the Cenis out. Wanted to know how much of it was freight quality? How much of it was the cost turnout? And then also with your freight quality, how much customer turnover did you have? And what is your mix now versus before? Yes, that's a very good question, Jason. So in terms of our focus on quality of freight, our philosophy over the last 2 years has changed tremendously because Canada, it's a big country and you need density because serving a customer with LTL costs a lot of money versus let's say, a P and C shipment. So you've got to make sure that you've got some density. So what we've been doing over the last 2, 3 years is that our network has been focused on dense areas of Canada, okay, which we've accomplished. Also at the same time, we've introduced tools, okay, like Freight Snap and all these tools to make sure that there's no cheaters in our system because all the pricing most of all the pricing is done on a per weight basis. And somebody tells you it's $1500 and you're in a rush, £1500 and it's actually £2,000 So now we're doing a better job on that, making sure that all the accessorial, all the different stuff is invoiced to the customer like it should be. And also, what we've said to our guys is that you cannot be in the business of hauling minimums at, let's say, dollars 50 for a pallet between, let's say, Toronto and Montreal. This is not for us. I mean, this is a loser. So we've clean all these shipments that don't fit the network and that don't fit the philosophy of the company. So we're not in the business of practicing delivery. Us, we're in the business of making money serving customers on behalf of our shareholders. That's the vision of TFI. So this is the cleanup. So if you look at our revenue, our revenue is down, okay, for two reasons. 1 is some freight that doesn't fit the network or doesn't fit the philosophy of the company. And also the fact that LTL in Canada is shrinking because my customer of LTL are being affected by the e commerce, the brick and mortar guys, the mall guys are being affected. So the revenue has to come down in the LTL. So this is why we've always been active on the M and A side. So we should be announcing a small transaction in this segment very soon in Canada. At the same time, our focus has been on the intermodal because this is a cheaper solution for shipping across Canada from East to West. And this is what we've built with Bystrand, with NFF and with Clark over the last few years. And this is really an asset light operation for us because line haul has been done by the rail guys and most of our P and D operation, I would say 99% is done through an owner operator or an agent. So again, this is the focus of, listen, let's propose to our customer a cheaper option if they want, which is the intermodal. And if the guys want to be over the route, well, they got to pay a fair price because us we need the fair return. In terms of customer return, Jason, not so much. I mean, yes, for sure. I mean, we have a huge U. S. Shipper that went an RFP and the guy says, we're not making a lot of money. We need a cheap carrier. Well, I say, listen, I mean, thanks, but no thanks. I mean, deal with somebody else and let's see what happens because some customers that have left, okay, because of rates issue, some of them are coming back because they need the service. That's great color. I appreciate the time as always. Pleasure, Jason. Take care. Our next question comes from the line of Konark Gupta with Scotiabank. Your line is open. Thanks and good morning everyone. Good morning. Good morning, Alain. Just have a few questions here. 1, so you have beaten expectations on EPS, Alain, in the first half. And the industry is calling out for a normal peak season in the second half, obviously. It looks like you're obviously not done on the margin improvement. So any thoughts on the room for further upside in your revised guidance? And what would be the key puts and takes and that could influence your guidance? Well, you see, that's a very good question because us, we're very conservative. So yes, if I listen to our model, okay, we could say maybe 4, 4.20 or something like that. But there's so many things that are uncertain, okay, right now in the U. S, for example, this China thing there with trade and this. So there's a lot of things that everything looks good when you look at it, but then the freight environment in the U. S. Is still soft. So us, we're very careful because we don't control the market. We don't control the activity on the market. So this is why we're careful, okay, with our forecast and we say, listen, yes, sure. I mean, dollars 3.90 to $4 is doable. Can we do better than that? Probably, we'll see. But us, we like to understate the fact and over deliver. I don't remember exactly the right phrase, but under promise and over deliver. That's the phrase I was looking for. And so we're not in the business to create Mirage and we're saying, okay, this is what we think that is attainable, doable. Hopefully, we do better than that, right? Yes, that makes sense, obviously. And clearly, we have seen that. So please continue to do that. 2nd on the margin. So they were quite strong across the board and especially LTL. So it looks like the pricing was very, very good there. So my question is really, is first the pricing that you have seen in Q2 on LTL side especially is that sustainable in the second half of this year? And are you intentionally letting volumes go elsewhere if pricing does not make sense? Absolutely. You're absolutely right. I mean, the reason that our pricing has improved so much is because we let go of business that didn't make any sense, that low margin. When I say low margin is, when we talk to our customer and at the end of the day, our bottom line is 3%. We say, listen, Mr. Customer, with these rates, our profit is 3%. I mean, I cannot invest a truck or a trailer or an employee to service you for 3% Because I would be stupid to do that because the best thing would be to buy, let's say, Scotiabank's stock and I would get more than 3% in dividend, right? Yes. That one makes sense. So that's our thinking. That's our thinking. So we say to and things change. There's always an evolution in the business. So for instance, if the shippers average weight 2 years ago was £1100 per ship and now he's down to 850, okay, because his business has slowed. Well, for me, I'm getting less money and my cost is as much or maybe even more than it was like 2 years ago. So we have to address that. So we're talking to some customers and we say, guys, we need to improve the rates or have somebody else do the work. And if these guys are in business just to breakeven, okay, good for you. But us, we're going to do something else. Okay. That makes sense. That's great color, L. A. And then lastly on TL, so your U. S. TL business obviously showed continued to show improvement on OR side, which you are kind of expecting, I guess. But what caused weakness in Canada and specialized in the second quarter? And then would you expect the U. S. To hit the mid-eighty percent OR at some point this year or maybe next year? Okay. So let's talk to Canada first. Well, what has affected us really badly in Canada is our flatbed division, okay? So our flatbed division in Ontario, mostly Ontario, is really suffering right now because of well, we have first the story of the steel tariff. Okay. So steel tariffs created a mess in our flatbed because we're the largest dollar of steel in Ontario, flatbed. So that was not good news for us. Now, excuse me, those tariffs have been removed now. But you can't turn a big ship on a dime. So it will take months months before we go back to normal. So probably, we're going to be still suffering in Q2 3 and probably in Q4. So our flatbed has been affected badly. So this is one of the reasons why we're running just an 87 OR, which is the same as our van division. Normally, we should be running in Q2 an 83 to an 85 OR in our specialty truckload. So that was part of the business that was affected badly. Also, we've invested in a great company in the U. S, which is highly seasonal. Holic, okay, is really highly seasonal. So it's a beach hauler. So these guys are not really busy. We're busy, but not that much busy, but it becomes really crazy busy, okay, starting, let's say, August, the end of August into early in 2020, like January February. So this again, it's something that's not showing up. That should improve in 34. But the flatbed has been a little bit of a rock in our shoe in Canada because of the steel tariffs, because the rest of the business, our tank division is doing very well. Our stainless steel division is doing very well. Our ball division is doing well. So it's really the flatbed that has affected us. Now in terms of where do we see Q3 and Q4 on the U. S. Side, I mean, I've always said over an average of 10 years, you have to be running a 90 OR because you're going to have some great years at 85 and you're going to have some more difficult years at 93 or maybe 94. I think that right now we're in the middle of this not great, not bad, so it's average. So for me, if we can be steady at around 90 or maybe 88 to 90 for the rest of the year, I would be a very happy camper. Okay. That's good color, Alain. Thanks so much and congrats on great results. Thank you. Our next question comes from the line of Sadi Chamoun with BMO. Your line is open. Okay. Thank you. Good morning, everyone. Good morning, Sadi. So first question, can you kind of talk a little bit about the dynamic in this last mile in the U. S? What do you think the issues are? And how do you go about fixing that? Yes, absolutely, Pareen. So if you look at the way we run Canada, I mean, there's a huge difference into the EBIT of our Canadian operation and the EBIT of our U. S. Operation. There's many reasons for that. Reason number 1 is that the U. S. Market, we have way more competition from companies that are not doing well. So BeavEx is one of them, okay? So we took on BeavEx just a few weeks ago. East Connection was also one of them. East Connection has been closed 2, 3 months ago. There's another one that will probably fold within the next month or 2. So the market environment in the U. S, there's a lot of companies that are owned by people that probably don't like to make money or don't know how to make money in the sector. So that's reason number 1. Reason number 2, and this is why we asked Cal, our Canadian guy to help Scott, which is a great Scott Leverage runs our U. S. Operation. And with the acquisition of BeavEx, which is BeavEx was not making any money. So we said, Cal, could you help our friend Scott there, okay, because the market is starting to clean up. I mean, it's going to be a little bit better, but we have to shed costs. We have to improve our and vice versa. So in my mind, okay, we have to improve the U. S. Operations by at least 400 to 500 basis points, which means bottom line $20,000,000,000 to $30,000,000,000 improvement over the next 2 years. And this is with the help of the market getting improved in terms of competitors that don't like to make money or don't know how to make money. And I think that the crazies there are in charge of the asylum. I mean, nobody is running the show. And the fact also that we, us, have to work on our costs and be more efficient. So as an example, our real estate costs in the U. S. Is going at about 5% to 6% of revenue. In Canada, we're running at 2% to 3%. So you cannot run a last mile operation at 5% to 6%. Now as we know, cost of industrial space is just going through the roof with increase of 20% to 30% to 40% more because the demand is there. So us, we have to operate in a more efficient way, right? So this is what the team effort is going to be to reduce our operating costs and at the same time, hopefully, that some competitors smarten up and start building a team so that they are focused on making money just not just growing volume. Because we could grow the company 20% in the U. S. Easily more than 2%. And us, we're not in the business of 2%. Okay. Okay. It looks like there's a plan to go after this. So I'm guessing the benefit of all these actions you're taking are probably more on a 2020 story. Well, it's now, okay, but it's going to take us at least a year to 18 months to bring the U. S. Operation to at least closer to Canada. I mean, Canada, it's always the same story. We try to always do better, okay? But let's say Canada, we're running at 90% efficiency, U. S. We're running at 50% efficiency. So we got a lot of work to do on the U. S. At the same time, we have to digest BeavEx. Okay. My second question is on the pricing. Can you kind of talk a little bit about how the pricing environment is in truckload, conventional truckload drive van in the U. S. And Canada and how it's kind of played out in the last few months and how you see that in the back half of the year? Pricing is steady, Fadi. I mean, it's we've got a little bit of pressure, but globally, it's about steady. The problem we have is that the freight environment is soft. Okay. So for sure, guys with lots of trucks and no freight, they get nervous and they call the world to get freight. So for now, it's still okay because us what we're trying to do is to fill, okay, the demand, the empty trucks that we have every morning, okay, with customers that we already deal with. So we're not on the web trying to find loads in here and there. So that's our focus right now. And we believe that this market environment is probably now some guys are saying it should improve Q3, Q4. Our plan is that there's no improvement. Hopefully, there is. So pricing environment in Canada is okay. It's not great, but it's okay. We feel a little bit of softness in on the East Coast, like Ontario, Quebec, because we have a situation in Canada with what they call the drivering syndrome, where we have unfair competition from some companies in Canada. So that creates a little bit of pressure on race. But besides that, we feel good. We have our costs really under control. We're still working on them on the Canadian side. For sure, where we have some opportunity is with our specialty truckload because we took on a lot of M and A in our specialty TL boat in Quebec and in Ontario. So for sure, when we're buying a company, those guys are not running an 7 OR. Okay. So if they're good, they're running a 92 OR, 93 OR. Some of them are running a 95 OR. So this is why our guys like Steve Brooks, our team are really busy in costs in all the M and A that we've done over the last 12 to 18 months. So yes, we could see some improvement in our cost base within our specialty truckload within the next 6 to 12 months, right? Okay, great. Thanks a lot. Pleasure. Our next question comes from the line of Walter Spracklin with RBC Capital Markets. Your line is open. Thanks very much. Good morning, Eli. Good morning, Walter. So focusing in on your outlook, you've changed your tone quite a bit here. I think you're noting you mentioned a mixed economy, the potential for more challenging trucking conditions. And wondering, just looking at the volume, I know a lot of the volume that went away, you sent away on purpose and getting rid of bad volume is always a good thing. How much of the volume decline that you saw across your divisions was actually economically driven that is wasn't demarketed volume, it was just lower same store volume because of a weaker demand environment among your good customers? Well, let's talk about P&C. So what we're facing now in the P&C is our customer in the mall, in the brick and mortars are slowing down, okay, And our e commerce customer are growing up. So you look at my revenue, my revenue is flat, but I'm trading mall for e commerce right now. This is what's happening, okay? My LTL, okay, what we've done is, like I said earlier, we shared the business of all these guys that could not afford a carrier that wants to make money. So this has been the focus and we're $12,000,000 less in revenue in the quarter. A lot of that had to come from the Kingsway TST Overland combination a year ago. Okay. So that's still as a comparison, we're comparing that. And the NFF acquisition that we did about 1.5 years ago, okay, with where we bought a company at $80,000,000 and today the and losing $80,000,000 losing $8,000,000 to $10,000,000 and today it's a $50,000,000 making $5,000,000 to 6. So we this is ongoing. And at the same time, like I said earlier, the LTL because of the e commerce, my customers are suffering. So to have a 4%, 3%, 4% negative growth in the LTL, to me, it seems like normal because business is changing. On the truckload side, we don't shed really customers there. We did that in the U. S. Until probably like late 2017, early 2018. But right now in the U. S, I mean, it's just business as usual. We're happy with the customers we have. We're trying to improve our mix of customers, but there's no real major change in our customer base. And the same thing with our Canadian truckload. I mean, we're now we've got some good customer. The only area where we see a little bit of change is in our special TTL, where we have an issue in the cement hauling business with some driver ink there. This phenomenon that we have mostly in Ontario that is really unfair. We have that. But basically, the rest of our steel or lumber or chemical or food grade business, it's really steady. So it's really trying to improve our costs on a day to day, because if you look at my improvement in my LTL, this is not the market. This market rate did not improve 13%, 14%. No, It's just that we got rid of all these guys that are cheap that wants you to be a 2% guy. We said, thanks, but call somebody else because us, we manage our capital and we can invest capital for a guy that wants us to be a 2% guy. Makes sense. And you continue to be a good free cash flow grower. Do you have an updated guidance on that for 2019 in terms of your free cash flow? Yes, yes, yes. So it's going to be well, this year we have we're buying back a terminal in Toronto. That's going to cost me $38,000,000 okay, the Viasat Terminal in Toronto. We're also investing $10,000,000 a little bit more than $10,000,000 to $12,000,000 exceptional in Calgary for our Canpar Loomis hub in Calgary that's going to open up late in the year. But that being said and that being in our free cash flow for this year, the net will be about 400,000,000 dollars after paying for those $50,000,000 of special one time major investment. Now in 2020, we're building also in Calgary a new intermodal hub for our Vitran, Clark, QuickEx, NFF operation in Calgary. So that's going to be we own the land, but the building is going to cost us between $15,000,000 to $20,000,000 So this is going to be 2020, though. So when we look at your net CapEx for 2020, we should at least see it hold in given some of the one times you did this year, you'll do a few more one times next year. Yes. So not a big change in your CapEx for next year is what you're saying? No. No. So this year, the one time because of the building in Toronto, okay, and the equipment in Calgary is about $50,000,000 Next year, we're buying back another terminal in Montreal, and we're building a new one in Calgary, which is going to cost us about $50,000,000 So it's $50,000,000 this year, dollars 50,000,000 next year, which is exceptional, which is building. But that being said, even with that, okay, investing the cash, we're still left with about $400,000,000 of free cash flow after paying for those $50,000,000 investments. Right, right. And when you look at your free cash flow then after that CapEx, and let's say after dividends are paid, you've got a dollar free cash flow left. What are you earmarking in terms of buyback versus acquisitions? How would you expect to divide up that dollar after whether it's through more dividend growth? Is it what kind of mixture of that dividend growth buyback and acquisitions are you targeting? Well, first of all, I think that we will change our dividend for 2020. So right now, we're at $0.24 a quarter. I think my recommendation to the board will be in October at around $0.27 $0.03 more, okay, because our policy has always been to get at least 20% free cash flow back to our shoulders in terms of dividend. Now after the dividend, okay, our philosophy has been, okay, there's no big whale, okay, there's nothing major happening in 2019. There may be something more of size in 2020. So this is why we've asked the Board to approve that 1,000,000 shares, which we're going to do right now until the end of September. And we've also asked for $7,000,000 for 2019 to 2020. And so that will come within the next few weeks as soon as the TSX approve it and all that. So unless there's a big, big rail for us in 2020, which we're working on, but you never know that could be 2021. Unless we have that for sure, the focus is going to be reduce our share count. I mean, we love to buy our stock at more than 10% free cash flow a year. We love that. So this is what we're doing now. We love to do that. So for sure, if things remain the same and there's no big whale in 2020, we're going to buy back another 7,000,000 shares to bring the share count down to 75,000,000 shares. And then, okay, we'll for sure do probably like $200,000,000 to $225,000,000 of small tuck in, okay? We've got so many opportunities for growth, okay, based on the recommendation of our great operations team that we could easily spend next year at least $200,000,000 on good tuck in M and A. Okay. Sounds great. Thank you very much, Eli, as always. A pleasure, Walter. Take care. And our next question comes from the line of Cameron Doerksen with National Bank. Your line is open. Yes, thanks very much. Good morning. Maybe just follow-up on the M and A. You just discussed the potential for tuck in. Given that maybe the freight environment in North America has gotten a little softer here, are you seeing some, I guess, more favorable valuations in the things that you're looking at? Absolutely, Cameron. You're absolutely right, because there's 2 things that helps us. First of all, the valuation, let's say, the 4 or 5 times or whatever it is, okay, has come down, okay, for sure. And your valuation factor is on an EBITDA that's lower than, let's say, 2018. So it's a double whammy for us as a buyer of companies. So it helps us big time. So this is why, like I was saying to Walter, for sure, we're going to be investing at least 200,000,000 dollars on M and A in 2020. You should see us between now and the end of the year with maybe just a few deals, okay, because we did about that this year and we have to digest, okay, what we bought. So probably 3 and 4 of this year is going to be much quieter than 1 and 2, but we're getting ready for at least a good M and A year for 2020 excuse me, of about $200,000,000 and maybe a big whale that's going to change like a CFI change of company in 20 16, late 2017? Maybe. I mean, we're working on that. But you got to be patient and you got to be focused on what you're trying to do. Right. Absolutely. So maybe second question, just on the P and C segment. The margins there continue to be very good. But I'm wondering if you could just talk a bit about the competition. If I look at one of your big competitors there, Purolator, they made a big announcement not too long ago about significant investment in their network, including an expansion of capacity. I'm just wondering what that means, do you think, for competitive for the competitive market? And also, what does it mean for your requirement to invest more in that business? Yes. You see Cameron, the competitor that you talked about, I mean, they made a choice, okay? They made a choice that they're piggyback on the largest e tailer in North America. Us, we made the choice of not investing for those guys like FedEx. Okay. FedEx said we're not going to invest for those guys. We're seeing the same thing. I mean, we're servicing that guy in small markets like Victoria, Regina and all that, but we're not investing for that guy for, let's say, Toronto, Montreal or Vancouver. So us, we're investing for other customers. So this is why we're investing in Calgary, okay, right now for our new offer, Ken Parlumas. 2020, we're going to be working on Edmonton because Edmonton has to be done after Calgary. And we've already started, okay, for Toronto because we have to do Toronto in 2023. So but we are investing in customers where you can make money. So if I have a guy that says to me, I don't make money in my distribution, so I think that, you should not. Or if the guy tells me, well, your margin is my opportunity, I don't really like that kind of statement. So I'm not going to work for you, okay? So this is why us were way more conservative than the other guy and we're investing with the knowledge of we don't want a 50 year payback on the investment. It's a little bit long. So it's got to make sense. So if you think about Calgary, what we're doing is we have a payback of about 3 years on the Calgary, 3, 4 years depending on who you listen to, makes sense. Better technology, more efficient. Like Toronto, it's going to be the same thing because our JCC center is very close to capacity right now. So the first step is that we're going to do a move with 1 of our satellite and then we're going to do the JCC Center Phase 2, probably like 2022, 2023. So we are investing, Cameron, to answer your question, but in a smart way for customer where we can get a fair return. No, that absolutely makes sense. That's all I had. Thanks very much. Thank you, Cameron. Our next question comes from the line of Benoit Poirier with Desjardins. Your line is open. Good morning, Alain. Congratulations for the good quarter. Thank you. Thank you, Benoit. Yes. Just to come back on the M and A. I understand that you don't expect a lot, still modest M and A for the back half of the year. But just looking at big wells, are there any particular segment where you believe a big well could be catch eventually in 2020, 2021? Well, if we look at the last mile operation, okay, we did our friend BeavEx, which added about $100,000,000 to our revenue in the We're looking for sure to beef up our last mile operation. It's tough for us to do in Canada, but I think we could do more in the U. S, okay? And we're working on that because we believe that the last mile operation that we have is the most efficient way to service e commerce. Okay. We have a next day operation in Canada, okay, that service e commerce. But this is based on customers' demand and all of that. It's a great way to service the e commerce, but is it the most lean and mean way? We don't think so. If the customer has some distribution center in the major cities, last mile is the way to go in our mind. Now that being said, so this is why this is one of our focus in the U. S. One thing is for sure LTL, like I said earlier, is shrinking every year because of the e commerce. So that's also an area for us to keep an eye open if we could catch something upsize in that sector. Now on the specialty truckload side, we've started slowly in the U. S. We bought 2 good companies, Shili and Holic, Very happy with what's going on there. As you know, our mix in Canada between regular van and specialty is about fifty-fifty. In the U. S. Is about ninety-ten, so or eighty-twenty. So we want closer to a fifty-fifty mix in the U. S. So that's also an area that we're really looking at. There are some good companies there that could be interesting for us. So we keep an eye on that. And the only P and C, it's tough for us to do something in Canada because there's not a lot that we could put our hands on because there's not a lot I mean, if you exclude the big guys, there's not a lot of guys left to do something on the M and A side. So this is why P and C is probably a little bit more difficult, but LTL, Last Mile and Specialty TL is really where our focus is. And we're working on a few things. And like I said earlier, patient is the name of the game in our world of M and A. Okay. Take your time. Okay. And LTL, would it be fair to say that it would be only Canada or you could maybe look at the LTL in the U. S. As well, Alain? Well, like I said, for sure, Canada. I mean, we're looking on the Canadian side because we're the largest player in the LTL. If a nice opportunity comes up in the U. S, absolutely, we'll look at that. I mean, it's we have a great partner. That's the way we service the U. S. Today. But maybe one day, you could buy the partner, I don't know. But it could be an opportunity on the U. S. Side, absolutely. I mean, we like the LTL world, okay? In the U. S, it's a market that is way more, how would I say it, less players, more disciplined than the Canadian market. Okay, okay. Very good. More disciplined. I mean, the U. S. Is more disciplined than the Canadian market because there's less players. Okay. And just on BeavEx, could you talk a little bit about the integration of BeavEx versus your initial expectation? How does it go on this side? It's still early, Benoit. It's still early. What the guys saying is that right now we're addressing a lot of issues. Those guys didn't make any money, okay, for two reasons. Reason number 1 is they had too many too much real estate, too many staff, too many of too many. So their costs were through the roof, number 1. Number 2 is as normal, when you have a weak management team, you also have shitty rates with customers. So that's the other issue that we have to address slowly. We're in discussion with some customers that took advantage of BeavEx, because it's just normal. If the guy doesn't know what he's talking about, then you can take advantage of the guy. I mean, the shippers are smart, okay? So we're working on that now as we speak. So this is why with Cow and the support of all the team there, it's still early because we bought the company just a few weeks ago. But we're busy. We're busy fixing situation and everybody knows in the U. S. That when we're running 5 to 8 points behind the Canadian division, there's something wrong. So there's something wrong because in Canada, we don't have a BeavEx that is that was not doing the right thing. In the U. S, we had BeavEx, we had Velocity, we had this guy and this guy and East Connection and this according to plan. Okay. Going well and it's according to plan. Okay. And Alain, when we look at the overall valuation of your stock currently trading close to a 5 year low, obviously, valuation is much lower than it used to be. You've been disciplined in the past looking to make some potential divestiture. You've done it on the waste side. Do you see any opportunities right now to create value for shareholders? Or you prefer to grab some M and A opportunities given that the valuation is more attractive? How do you look at some potential divestiture given your current valuation? Well, there's 2 ways to answer that. Number 1 is I'm happy, okay, because it creates an opportunity for us to buy back our stock. And like I said earlier, we should probably reduce the share count by $8,000,000 between now and the end of 2020, which is about 10% of our shares. Now that being said, you're absolutely right in the sense that if people don't see the value of TFI, then what you do is you buy back the stock or at the same time, you could divest of an asset like the waste, like you said, that was sold for about 11 times EBITDA when the company was treated at maybe 6 or 7 at the time. So for sure, if you look at the way these are being done, okay, I will just say an example of when Dycom Canada was bought by GLS, which is owned by Royal Mail. I mean, you look at this transaction and you say, wow. And then you put the same valuation to one of TFI's business and you say, this doesn't make any sense. This doesn't make any sense. So yes, it's something my job is to make sure that we allocate capital properly and then we're on plan. And also when I see an asset like the waste and we may have some other assets within TFI that are so undervalued based on market evaluation today that, yes, maybe it's something that we're working on. I mean, time will tell. Okay, perfect. And just a quick one for me. You mentioned an update on the free cash. What about your CapEx, Alain? Is it still 200 225 is kind of the good number for this year and next year? Yes. Yes. Okay. And would it be the same in 2020, Alain, in terms of CapEx? Well, if there's no huge transaction, I mean, it will be in the same ballpark. We don't anticipate to reduce our CapEx because some of the truckload guys in the U. S. Are saying, oh, we're going to reduce our CapEx. No, no, no, no. We're not reducing our CapEx, okay. The only way we will reduce our CapEx is because the business does not warrant investing in a truck because the profitability of this account does not make any sense. Okay, perfect. Thank you very much for the time, Ale. Pleasure, Benoit. Our next question comes from the line of Nav Malik with Industrial Alliance. Your line is open. Thank you. Good morning. So I just wanted to follow-up on the capital allocation. And I know you are being aggressive with the share buybacks. But what about in terms of debt repayment? Is that what are your thoughts on paying down debt versus the share buybacks? Well, you see, our approach to leverage has always been the same. I mean, we like to play between 2% and 2.5%. Percent, and right now, we're at about 2.25 percent. So with all the buyback that we've done, I mean, we bought back, what, about 6,000,000 shares so far, trailing 12 months. So we feel good about that. And as long as we play between the 2 and a half and 2, we feel really good. Now maybe what can happen is and the same thing in the past, if there's a big whale in a transaction that could push the, let's say, the leverage to 3 or maybe 3.25, then, okay, what we do is that we have to be careful with the buyback because then we have to spend more of our capital repaying our debt. Yes. I mean, I guess that's kind of my question in terms of the balance between share buybacks and debt. I mean, it certainly seems like you're being very aggressive on the share repurchases. But I'm just wondering why not allocate some more capital, some more of that free cash flow towards debt repayment rather than share repurchasing. Well, because the cost see, my shares cost me a fortune right now in terms of the dividend and the yield versus very low interest rates. So that's why our decision is let's focus more on buying back the share versus reducing the debt. We're working on something right now that again is going to lower the cost of our debt. So we feel good. I mean, if you go back in history, because this we always look at history and you go back into the 2,008 major recession, our revenue went down 20%, our EBITDA went down 20 Our debt at the end of 'eighteen was €800,000,000 Our debt at the end of 'nine, 'nine was 6.75, if I remember. And we went through all this storm, okay? So we feel very good. Now let's say that the same thing happened now. So excluding IFRS thing there, TFI's EBITDA would be what, let's say, dollars 800,000,000 goes down 20%, goes down to $650,000,000 Our debt is $1,700,000,000 today. So 6.50 times 3. So our leverage would go up to very close to 3. And so and then if there is a 28% drop in revenue, then there's a 20% drop in CapEx, which is just normal. So your debt comes down. So we feel good. I mean, we do all these scenario now, because we're not in the business of not knowing where we're going. I've done that for 40 years. So we have a vision. We can make mistake, yes. But right now, when I look at the stock price at 38 dollars I'm so happy of buying it back. I mean, it's we trade at less than 10 times earning. The average the normal average of 10 years between 2015 for a high quality company. So to me, wow. And I've got some shareholders in the U. S. That says, I think stay in Canada, don't come to the U. S. Market because we're buying your stock and we're just laughing all the way to the bank. Don't get into the New York Stock Exchange. Don't do that. Stay in Toronto. And we're buying the stock and we make we're just laughing. Yes, fair enough. Okay. I just want to move to the truckload, the U. S. Truckload side. So very impressive results in the quarter, certainly in terms of your improvement in the operating ratio. And I'm just wondering if you could comment, I mean, some of the U. S. Truckload carriers were talking about an oversupply of capacity potentially correcting itself or potentially correcting by year end. Are you of the same view? Like are you seeing maybe you could comment on how you're seeing that market unfold? Yes. So if you look at the Class 8 trucks that are being sold and the cancellation order and all that, this is the stupidity of our industry. In the good times, like 2018, on the rate side, we buy more trucks, we add capacity and then we end up with the 2019 market, okay, being soft for a few reasons. 1, because of the Chinese tariff that was pre buying in Q3 and Q4 of last year. So if you pre buy in Q3 and Q4 of 2018, then you got too much inventory. Well, you got a lots of inventory in Q1 and Q2. So that affects the trucker. Soft environment, some small truckers panic. Okay. They see, I've got new trucks coming and it's the stupidity. Now what the truckload guys in the U. S. Are saying is that this should resort, okay, early into next year or maybe late into this year. I'm not a magician. I cannot say that. I don't know. The only thing I can say is my team under Greg Moore, those guys are focused on cost and becoming the AA team in terms of being lean and mean. And this is the focus. And if those guys are right that the market will start to improve late in 2019, we'll take advantage of that. But we're not hoping for that. Our focus to us is let's work on something that we control, which is us, our cost. That's how we manage our business. But if these guys are right and the market starts to tighten up and the rates starting to get better, for sure, I mean, we'll adjust ourselves to the market. Okay, great. Thanks very much for the color, Helane. Pleasure, Hal. Our next question comes from the line of Kevin Chan with CIBC. Your line is open. Hey, good morning, Alain. Thanks for taking my question. Just one for me. You've talked a lot about growth through acquisitions here as a way to maybe offset some of the potential softness that could be coming down the pipeline. When I think back to the, I guess, the freight recession a few years ago, there was some difficulty in integrating some of the assets you had acquired there. You had to put in a little bit more capital to kind of get it to work. And we're obviously seeing the benefits of that today. Just wondering, when you look at your due diligence process today, given the outlook is a little bit more uncertain, is there anything you're doing differently to make sure that this the earnings that you're buying are stickier or that the assets you're buying are of the quality that you think that they should be so that there isn't some sort of unforeseen negative surprise when you start folding these in? Has anything changed over the past few years post the freight recession we had back in 2015 2016? You see Kevin, when you do M and A, there's always risk. You could do due deal for 2 years, okay, and you think that you're safe 100%, but you're never safe 100% because there's always something that may happen that was unforeseen, right? So what you have to look at is what's your average over 10, 20 years of what's your batting average? Because nobody bats for 1,000. So if you bat for 400, you're great, okay? So if you look at TFI's history, when we bought TFI CFI, okay, sure, we were disappointed. We were disappointed. In our due deal, we use all kinds of people to help us with the due deal. But there's some information in M and A. The seller is always very cautious because you're competing with him, which is customer information. So if you look at the CFI acquisition, the big problem we had there, number one problem is we had about $60,000,000 of freight that did not fit the network with terrible rates and it took us close to a year to get rid of that, right? And that's something that we could have done another 3 years of due deal. And this is information that is never available because you're buying and you're competing with the guy. He's not going to show you his customer list, right? So there's always things that may happen. But us, we have an experienced team and I think that the proof is in the pudding. I mean, we've done a lot of acquisition. And if you look at some roll up in the U. S, some are good, some are still looking good and some don't look too good. But if you look at TFI over 20 years, we took this company from $100,000,000 losing $10,000,000 in 1996 to $5,500,000,000 today and making, what, dollars 400 something? Right. And this was done through smart M and A because this is my job. This is what I've done when I was with my previous employer and this is what we've done at TFI. But there's no certainty on M and A. You could do whatever you want. There may be some surprises, but I mean, we got the 'eighteen, right? So our team are looking at that and say, hey, we're going to fix it. CFI was more difficult because we didn't have a lot of bench strength in the U. S. Now I could say that we have a hell of a team. We have a great team in our van division in the U. S. No question about that. So we could take on more. And on the Canadian side, we're second to none. That's fair enough. And great color there as well. If I could just ask one last question here on the EPS guidance range. I know there's been some moving parts and you acknowledge that in your opening remarks about the market being a bit softer, that you're folding in some M and A. If I were to look at the buckets from the 3.50 $4 of adjusted EPS you had last year moving up about, let's say, the midpoint of your guidance about $0.40 How would I break that up? When I do the quick math, is it like $0.20 plus from M and A? Maybe I'm wrong there, let me know. About $0.10 on IFRS maybe then the rest is organic? IFRS is out of there. I mean, we don't talk about IFRS. Okay. IFRS for us is like stupid accounting. Okay. No, we don't talk about that. With our banking deal, it's completely excluded IFRS. We don't even talk about that, okay. So for us, when we talk about the $0.40 improvement, a lot of it comes from our USTL. Right. Okay. So it seems about half the benefit would be about US or half the benefit is organic? Yes. Okay. That makes sense. Yes. Yes. And our U. S. I mean, our Canadian M and A is not as profitable. It's profitable, but it's not as profitable as our existing business. Because like I said earlier, we buy a company that's a 92 or a 95 OR, they're doing good. But us globally, our specialty is 87. So if we buy 95, we've got an opportunity to bring those guys at least to $87,000,000 but that takes time. So this is why Steve and his team there are really busy, okay, bringing all these acquisition closer to 87. So this is the beauty of having such a strong team in Ontario on our specialty TL, but that takes time. It does not happen overnight. The only problem we had so far with our specialty, I said it earlier, is our flatbed division that was affected by the political environment between U. S. And Canada on the steel. So that tariffs are gone, but okay, tariffs have been gone for a month and a half, but that will take us 6 months to get back on our feet with the customers. Makes sense. Thanks for the color, Lane. Pleasure. Our next question comes from the line of David Ross with Stifel. Your line is open. Yes, good morning. Good morning, David. Yes, I just wanted to touch on the Last Mile segment. You talked about having a differentiated strategy there, thinking that I guess, you were taking a more efficient approach than some of the other big guys that have taken more of an asset based approach. Could you, I guess, flush out a little bit more what you're thinking, bigger picture from last mile strategy in the U. S? Yes. Good question, David. So our approach is, number 1 is if we could take on like a BeavEx or something like another BeavEx. I mean, this is step number 1. Step number 2 is we're beefing up our U. S. Team with the Canadian leadership, okay, to work more towards our costs. And number 3, part of our strategy is we need more of a sales team, okay, that's going to be in a position to really work closer to customer so that they can understand that our proposal is the same as the proposal of the largest e tailer in North America, because we do the same thing as these guys are doing for their own product. Okay. We run with a known operator model. Okay. We service more than 65 different markets in the U. S. So we have a huge coverage. But we're probably one of the best kept secret, okay, in the U. S. Because our sales team's effort was probably not focused in the right direction. So this is why we brought Cal, the Canadian guy that done a great job in Canada, okay, in helping Scott. And Scott is an experienced guy, company man and Scott's focus is going to be, okay, let's lead the sales team in the right direction. So we can get more organically than what we're getting now. And let's have Cal focus on the M and A side, working with the ops guy, working with Scott and our ops team there to be leaner, more efficient and also working with our CFO to make sure that we have better tools, okay, to manage cash and to manage costs on the admin side. So it's a huge effort because if I look at TFI today and you say, I think where you see more potential of improving, I would say Last Mile U. S. Is number 1, okay, and this is why we're beefing up the team. And then number 2 would be specialty truckload because we bought a lot of 95 OR company. So Steve's got a lot of work to do between, let's say, 6 months ago and another 12 months to bring these guys into the 85 OR, 83 to 85 OR where we should be. Now we're not there, okay, because of the reason M and A is 1 and the flatbed is hurting us a little bit. Hopefully, our flatbed, we have a good plan there and we'll get the results back on track. And the M and A that we know it's just a matter of time. And for the sales force that you mentioned, do you think you need a separate last mile sales force or are the salespeople capable or the right people to sell last mile logistics, truckload, other services that TSI might offer? No, ours, we believe in really trying to sell something that you understand well, okay. And our sales team, okay, it's got to be focused in selling the last mile, okay, within our last mile group, Because having our truckload guys selling last mile at the same time that they sell, I mean, we don't believe in that, okay? I know that some guys are talking about the guy sells, he sells food, he sells brick and he sells mortar and he sells everything for the house. I mean, us, we're really focused, sales team of Last Mile, focused on e commerce, growing that and also having the market and the customer understand that our proposal is the same as the largest e tailer And our costs are even better, okay, because we're lean and mean. Well, we're going to get leaner in the U. S, but we're really lean and meaning Canada. And last question on the last mile. Are there any holes in your network or areas that you're looking to beef up as you look to have a national U. S. Product? That's a good question. I mean, I'm looking at there's some areas, okay, that we could be a little bit more present. We're really strong on the West Coast on the high five all the way from, let's say, the Canadian border down to California, strong there. If you look at the East Coast, I mean, we're really strong in Florida. In New England, we could be a little bit stronger. Boston maybe, but we're really strong. New York going all the way. Carolinas, we could be a little bit stronger. Florida, we're good. And then you look at Texas, we're solid there. And then the Midwest, Illinois and Pennsylvania and all these areas, we could be a little bit stronger in that Great Lakes kind of operation there like Detroit. We're there, but we're not really a big player there. So there's some pockets that we still need to do better. But basically, I would say that we're probably like 75% to 80% of where we should be in terms of market coverage. Now the focus is really, Dave, to really be leaner and meaner in the years that we're going, try to grow organically with a stronger sales force, more focused on trying to explain to customers, potential customers that our recipe is great. We're the largest e commerce, okay, last mile guy, e commerce. I mean, we're not hauling fridge and stoves, okay, with our last mile. Yes, we have a small division called PPM that does that for a few states out west. But us, we're not calling fridge. Our last mile is parcel like what the largest e tailer is doing. Excellent. Well, that's all very helpful color. Thank you very much and congratulations to the CFI team on terrific operating results. They did a great job. Thank you. Thank you, Dave. Our next question comes from the line of Noam Ansari with Laurentian Bank. Your line is open. Hi, it's Noam here for Noam. Good morning everyone. Good morning. And then, I mean, if you could comment on the e commerce revenue, is that still growing at 15% 16%? Yes. Yes. Our e commerce is still growing. I don't remember, I don't have that next to me, the last number that we came up with. But for sure, our e commerce is still growing, but growing profitably, because we could grow 40% our e commerce if we want. But grow at 2%, like I said, many, many times, it's not us. I mean, we're not going to do that. So our focus is yes, growth, fine. It's okay. We're going to make money. Fair enough. And just one more from my end. Could you speak to the driver wages of the cost on that side of the U. S. Side as compared to what it was last year? Yes. Well, last year was a year of correction. I mean, there was lots of catching up to do for the driver's salary, okay. And at the same time, the freight environment was booming and there was lots of freight because don't forget, early in 2018, you got the ELD's implementation. So that had an effect for the, let's say, the first, what, 3, 6 months. And then there was this tariff with China. So there was this overbuying of product because of the tariffs that everybody knew that was supposed to come on, which they did. So 2018 was really a great freight environment year. And also it was also a great year for the driver because we were able to improve the salary of those guys. 2019, it's a different world. It's a different environment. I mean, the market is way softer. So what you see is that you got more stability in the drivers' wages. On the Canadian side, it's different world. We increase salary every year by 2% to 3% on our driver. It's got nothing to do with the market. It's just that this is this brings us stability in Canada. This is why our turnover in Canada for our truckload division is next to nothing, it's about 10%. Whereas in the U. S, our turnover is about 80% to 90%, which is about the same as the environment. But this is the U. S. This is the way it's been done there. Fair enough. Thanks for color on that and congratulations on your results. Thank you. No further questions at this time. I'll turn it back over to you. Well, thank you, operator, and thank you, everyone, for joining our call this morning. We greatly appreciate your interest in TFI International. Hopefully, you gather from my remarks today that we as we continue to move through 2019, we will remain focused on seeking opportunities to create value, unlocking it for our investors and whenever possible returning excess capital to our shoulder. So I look forward to updating you as the year progresses. And thank you again for being with us this morning and have a great day. Thank you. This concludes today's conference call and you may now disconnect.